Gross margin

What does gross margin mean?

Gross margin (brutomarge) is the difference between net turnover and cost of sales, expressed in euros or as a percentage of turnover.

The content depends on the P&L layout used. Staff or distribution may be in cost of sales at one company and appear as a separate expense at another; so compare with care.

How does it work?

Gross margin shows what is left of each euro of turnover after the costs directly attributable to the products or services sold have been paid. The law calls the amount gross turnover result (bruto-omzetresultaat): the balance of net turnover and cost of sales in the by-function model (art. 2:377(4)(c) DCC). That cost of sales includes purchases, production wages and depreciation of production assets, but not interest expense (paragraph 4(b)).

The by-nature model has no such line. There you derive a margin from net turnover less the cost of raw materials and consumables and outsourced work, and that is a different number: production wages and depreciation are not in it. So state which costs you deducted. Small and medium-sized legal entities may combine the top lines into one item, gross operating result (art. 2:396(4) DCC and art. 2:397(3) DCC); an outsider can then no longer recalculate the margin percentage.

Example

A web shop (BV) sells € 600.000 excluding VAT in 2025. The purchase value of goods sold is € 372.000, inbound freight and import duties € 18.000: cost of sales € 390.000. Gross margin: 600.000 − 390.000 = € 210.000, or 210.000 / 600.000 = 35%. In 2024 it was 38% on € 520.000 turnover, so € 197.600. Turnover grew 15%, the margin in euros 6%. Three percentage points less margin costs 3% × 600.000 = € 18.000 a year at current turnover.

In the annual accounts

Derived from the P&L; no mandatory separate balance sheet item.

Difference from net margin

Gross margin deducts only the cost of sales. Net margin is the result after all costs, interest and tax as a percentage of turnover. The web shop with a 35% gross margin and € 150.000 of staff, marketing and premises costs keeps an operating result of € 60.000, 10% of turnover, and after interest and tax even less. Gross margin says something about purchasing and pricing; net margin about the whole business.

Common mistakes

• Confusing gross margin with net profit
• Including VAT in turnover

What should you watch for?

• Calculate with turnover excluding VAT and after deduction of discounts; that is the net turnover of art. 2:377(6) DCC.
• Keep the composition of cost of sales the same every year. If shipping costs move from selling costs to cost of sales, the margin falls without anything having changed in the business.
• Track the percentage per product group and per month. A fall points to higher purchase prices, more discounting, inventory differences or invoices in the wrong period.

Legal basis and source

art. 2:377 DCC

• Dutch Civil Code Book 2, article 377

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