Gross margin isn’t just an accounting term reserved for big corporations or number crunchers. For Australian business owners, CFOs, and even savvy side hustlers, understanding gross margin can mean the difference between thriving and just surviving. In 2025, with rising costs and a shifting economic landscape, knowing how to interpret and improve your gross margin is more critical than ever.
What Is Gross Margin—and Why Does It Matter?
Gross margin measures how much money your business keeps after covering the direct costs of making or selling your products or services. It’s calculated as:
- Gross Margin (%) = (Revenue – Cost of Goods Sold) / Revenue × 100
It’s a fast track to understanding your core profitability. Here’s why it matters in 2025:
- Profit Pulse: Gross margin tells you if your core business is profitable before overheads, tax, and interest muddy the waters.
- Pricing Power: In a high-inflation environment, knowing your margin helps you spot when you need to adjust prices or renegotiate supplier contracts.
- Investor Insight: Lenders and investors look at gross margin as a signal of business health and scalability.
Gross Margin Trends in Australia: What’s Changing in 2025?
Australian businesses are navigating a landscape shaped by persistent inflation, new minimum wage increases, and supply chain recalibrations in 2025. Here’s how these forces are reshaping gross margins:
- Wage Pressure: With the Fair Work Commission’s 2025 minimum wage increase, labour-intensive sectors (like hospitality and retail) are seeing tighter gross margins unless they can pass costs to consumers.
- Supply Chain Costs: Ongoing volatility in shipping and logistics continues to affect COGS for importers and manufacturers.
- Tech Adoption: More businesses are using automation and AI to trim production costs and protect margins.
For example, a Melbourne-based café chain saw its gross margin slip from 68% in 2023 to 62% in early 2025 after ingredient and wage hikes. By renegotiating supplier contracts and updating its menu pricing, the business recovered to a healthier 66% by Q2 2025.
How to Analyse—and Improve—Your Gross Margin
Simply knowing your gross margin isn’t enough. Here’s how to go deeper:
- Compare Regularly: Track gross margin monthly or quarterly. Spotting downward trends early helps you act before profitability is eroded.
- Segment the Data: Break down gross margin by product, service, or store location. This reveals hidden winners and underperformers.
- Benchmark: Compare your margin against industry averages. For example, in 2025, Australian retail gross margins range from 30–45%, while SaaS businesses often exceed 70%.
To improve your gross margin, consider:
- Renegotiating with suppliers to secure better terms
- Optimising product mix to focus on higher-margin items
- Implementing process automation to reduce direct labour costs
- Strategic price adjustments aligned with market trends and customer expectations
Take the case of an Australian e-commerce retailer who, after a detailed gross margin analysis, shifted focus to private-label products with a 55% margin (compared to 30% for resold items). The result? A significant boost to overall profitability without increasing sales volume.
The Bottom Line: Why Gross Margin Is Your Business’s North Star
In the volatile 2025 business climate, gross margin isn’t just an accounting metric—it’s a dynamic tool for navigating uncertainty and building sustainable profits. By tracking, analysing, and actively managing your gross margin, you can protect your business from shocks, uncover new opportunities, and stay a step ahead of competitors.
