Gross margin is revenue minus the direct cost of delivering it, over revenue. Direct cost means the people doing billable work, the tools you buy on a client's behalf, and the cost of anything you resell. Overhead — management, premises, sales and marketing — sits below the line and is what gross margin exists to cover.
The most common error is putting delivery labour in the wrong place. Owner-operators in particular undercount their own time: hours spent on client work are a direct cost even when nobody invoices them internally, and leaving them out flatters the margin on exactly the accounts that are quietly unprofitable.
The second is blending everything into one figure. Managed services labour, project work and hardware resale have structurally different margins, and a single blended number moves whenever the mix moves — so a quarter with a large hardware order looks like a collapse when nothing has changed. Track them apart and the blended figure becomes a description rather than an alarm.
Where to set the target is a local question: your labour costs, your tool stack, your mix. What is not local is the direction of travel. If margin on managed services labour is falling while revenue grows, you are selling more of something that is getting harder to deliver, and that is worth knowing long before it reaches the profit line.