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A gross profit margin calculator is a financial tool that tells you how much profit a company makes after covering the direct costs of producing the goods or services it sells.

Calculate Profit Margin

Gross
Net

Revenue

COGS (Cost of Good Sold)

Your Gross Profit Margin Is

Your Gross Profit Is
Net Profit

Revenue

Your Net Profit Margin Is

Your Net Profit Is

Gross Profit Margin Formula

Gross Profit Margin = (Revenue – Cost of Goods Sold (COGS)) / Revenue x 100

Where:

Revenue: The total amount from selling goods or services during a specific period.
Cost of Goods Sold (COGS): The direct costs of producing the goods or services you sell. This includes raw materials, labor, and direct overhead.

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How To Calculate Gross Profit Margin?

Time needed: 5 minutes

Find Revenue and Cost of Goods Sold
Locate these figures on the income statement for your desired period (month, quarter, or year).
Subtract COGS from Revenue
This will give you your Gross Profit.
Divide Gross Profit by Revenue
This will give you a decimal value.
Multiply by 100 and express as a percentage
This is your Gross Profit Margin.

Example

Let’s say a bakery has the following figures for a month:

Revenue: $20,000
Cost of Goods Sold (COGS): $8,000

Now, let’s calculate the gross margin:

Gross Profit = Revenue – COGS = $20,000 – $8,000 = $12,000
Gross Profit Margin = ($12,000 / $20,000) x 100 = 0.6 x 100 = 60%

Therefore, the bakery’s margin is 60%. This signifies that for every dollar of revenue, the bakery keeps $0.60 as profit after covering the direct costs of producing the baked goods.

What is a good gross profit Margin rate?

There’s no single “good” gross profit margin that applies across all industries. It can vary significantly depending on the:

Industry: Businesses that manufacture complex products with a high cost of materials might naturally have lower gross profit margins compared to service industries.
Business Model: Some businesses, like discount retailers, might prioritize high sales volume with a lower profit per item, resulting in a lower gross profit margin.

Here’s a general guideline to keep in mind:

50% to 70%: This range is often considered healthy for many businesses like retailers, restaurants, manufacturers, and other producers of goods. It indicates a good balance between production costs and revenue.
Below 50%: This could be cause for concern, especially if your industry average is higher. It might suggest inefficiencies in production or pricing strategies that must be addressed.
Above 70%: This can be a positive sign, but ensuring you’re not sacrificing sales volume for higher profit margins is important.

the difference between gross and net profit margin

Profit margins tell you how much profit you earn from sales. Gross Profit Margin measures efficiency in converting sales to profit from the product itself. It considers only direct production costs (think ingredients for your bakery). However, a Net Profit Margin shows how much profit remains after ALL expenses (rent, salaries, taxes) are covered.