Definition – What is Gross Profit Margin?
Gross profit margin is a measurement of the revenue of the firm in relation to the cost of goods sold.
Formula – How to calculate Gross Profit Margin
Gross Profit Margin = ((Revenue – Cost of Goods Sold) / Revenue) x 100%
A company has a revenue of $17,000 and cost of goods sold of $4,000.
Gross Profit Margin = (($17,000 – $4,000) / $17,000) x 100% = ($13,000 / $17,000) x 100% = 0.7647 x 100% = 76.47%
Therefore, this company has a gross profit margin of 76.47%.
Sources and more resources
- Wikipedia – Gross Margin – Wikipedia’s entry on Gross Margin. Includes comparisons with markup.
- Houston Chronicle – How to calculate gross profit margin percentage – A short write-up of gross margin.
- Investopedia – Gross Margin & What’s the difference between gross profit margin and net profit margin? – A pair of pages that help explain the concept of Gross Margin.
- The Balance – Calculating Gross Profit Margin & The Meaning & Use of Gross Profit Margin – Two more articles on how to calculate Gross Profit Margin.