Gross margin is the headline profitability number for any service business. For an agency, direct costs are mostly billable people: salaries, benefits, and the percentage of their time that goes to client work. Subtract those from fees, divide by fees, and you get the margin.
For agencies, healthy gross margins are usually 50–60% — anything below 40% means the business is one bad quarter from a hiring freeze; anything above 65% is either an outlier specialism or a bad allocation of overhead.
Gross margin is sensitive to which costs you allocate above and below the line. Pull production freelancers into direct costs and the margin drops; push them to "project expenses" passed through to the client and it rises. Pick an allocation, document it, and stop arguing about it every quarter.