What Is Blended Gross Margin?
Blended gross margin is the revenue-weighted average gross margin across all of a company's product lines, services, or business segments. It tells you what fraction of every dollar of total company revenue remains after paying direct production costs.
Why Investors Care About Blended Gross Margin
When VCs evaluate startups, blended gross margin is one of the first metrics they look at because it determines long-term unit economics viability:
- Above 70%: Sufficient room to invest in sales, marketing, and R&D
- 50–70%: Viable, but requires careful cost discipline
- Below 50%: Unit economics are challenging for high-growth models
- Below 30%: Very difficult to build a venture-scale business
How to Calculate Blended Gross Margin
Wrong approach: Average the segment margin percentages
Correct approach: Sum gross profits, divide by total revenue
Example: - Segment A: $800k revenue, 85% margin → $680k gross profit - Segment B: $200k revenue, 40% margin → $80k gross profit - Blended: ($680k + $80k) ÷ $1M = 76% (not 62.5% which is the average of 85% and 40%)
Revenue Mix Strategy
Blended margin changes when revenue mix changes — even without any operational changes. If Segment B (40% margin) grows faster than Segment A (85% margin), blended margin falls. This is called "mix shift" and is a common source of gross margin compression at scale.
Use the Segment Gross Margin Calculator to model how mix changes affect your blended margin.