The formula is revenue minus cost of goods sold, divided by revenue. Cost of goods sold means the costs that exist only because you made that sale — materials, hosting for that customer, payment processing, the contractor hours delivering the work. It excludes overheads like rent, your own salary and marketing, which belong further down the income statement.
Gross margin sets the ceiling on everything else. It is the money available to cover fixed costs, acquire customers, and eventually become profit. A 25% margin business must sell enormous volume to support even modest overheads; an 80% margin business can afford to spend on acquisition and still improve. It also determines what your customer acquisition cost is allowed to be: what you can spend to win a customer is a function of gross profit, not revenue. Founders comparing several ventures should look at margin before revenue, because the bigger-revenue business is frequently the poorer one.
A concrete example: your agency bills $40,000 a month and pays $26,000 to the contractors doing the work. Gross margin is 35%, leaving $14,000 for rent, tools, your pay and any marketing. Your small software product bills $9,000 a month with $900 of hosting and fees — 90% margin, $8,100 available. The agency has four times the revenue and barely more usable money, and every new agency client requires hiring while every new software customer costs almost nothing.