Direct margin

Direct margin is the income percentage generated when all direct costs are subtracted from sales. This margin is useful for determining the amount of earnings generated, based on the application of variable expenses to sales. This margin is higher than the gross margin, since the gross margin calculation also includes factory overhead costs. The direct margin calculation is:

(Sales - Direct costs) ÷ Sales = Direct margin

Similar Terms

Direct margin is also known as contribution margin.

Related Courses

Business Ratios Guidebook 
The Interpretation of Financial Statements