Gross margin is revenue minus cost of goods sold (COGS), typically expressed as a percentage of revenue. It is the first profitability line finance looks at and the one contract terms move most directly.
How gross margin is calculated
A wholesaler books EUR 100M of revenue against EUR 78M of COGS, producing EUR 22M of gross profit. A back-end rebate flows through the same year and cuts COGS by EUR 1.56M, so gross profit rises to EUR 23.56M. Every euro of unclaimed rebate lands directly on the gross-margin line.
Gross margin is calculated as (Revenue - COGS) / Revenue. COGS carries direct material cost, inbound freight and any supplier rebates or discounts that reduce the invoiced price. Rebate accuracy is a gross-margin question long before it is a working-capital one.
Where gross margin shows up in contracts
Gross margin is not a contract term, but almost every commercial clause moves it. Price schedules, volume rebates, growth incentives, chargebacks, freight allowances and index-linked adjustments all land in COGS or revenue and reprice the margin. When the rebate that was booked never lands as cash, the miss shows up first as contract value leakage against the contract and then as compressed gross margin at reporting. The same movement rolls up to EBITDA impact once operating costs are layered on.
Gross margin FAQ
Is gross margin the same as gross profit?
No. Gross profit is the currency amount (Revenue - COGS). Gross margin is that amount expressed as a percentage of revenue.
How does rebate leakage affect gross margin?
Rebates flow through COGS. A booked rebate that never lands as cash raises reported COGS and compresses gross margin, one euro at a time.
Why do finance teams anchor rebate work to gross margin?
Because rebates flow through COGS, every recovered euro shows up as a direct lift on the gross-margin line without touching operating cost.
