Gross margin and contribution margins are two important, yet separate measures companies can use to determine how profitable their operations are. Gross margin is revenue minus total cost of the goods sold. Contribution margin is revenue minus variable costs. According to Datar and Rajan (2018),

the gross margin measures how much a company can charge for its products over and above the cost of acquiring or producing them. Companies, such as brand-name pharmaceuticals producers, have high gross margins because their products are often patented and provide unique and distinctive benefits to consumers. In contrast, manufacturers of generic medicines and basic chemicals have low gross margins because the market for these products is highly competitive. Contribution margin indicates how much of a company's revenues are available to cover fixed costs. It helps in assessing the risk of losses. For example, the risk of loss is low if the contribution margin exceeds a company's fixed costs even when sales are low. Gross margin and contribution margin are related but gives different insights. For example, a company operating in a competitive market with a low gross margin will have a low risk of loss if its fixed costs are small.

After studying and reading this information, respond to the following questions in your initial discussion post:

• What other insights or observations do you have with regard to the similarities and differences between gross margin and contribution margin and how these may be used?
• Do these quoted insights and your own insights change on these topics, depending on the industry sector being considered; if so, why?
• Do you think one type of margin is more important or useful than the other?

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