1. What is Gross Profit Margin?

The Gross Profit Margin Percentage measures how much out of every dollar of revenue a company retains as gross profit. It shows the percentage of revenue that exceeds the cost of goods sold (COGS), indicating production efficiency and pricing strategy.

2. How the Calculation Works

The calculator uses the formula:

Where:

• Revenue — Total income from sales before any expenses
• COGS — Direct costs attributable to production of goods sold

Example: If revenue is $100,000 and COGS is $60,000, the calculation would be: (($100,000 - $60,000) / $100,000) × 100 = 40%

3. Importance of Gross Profit Margin

Details: This metric is crucial for assessing a company's financial health, pricing strategy effectiveness, and production efficiency. Higher margins generally indicate better control over production costs or ability to charge premium prices.

4. Using the Calculator

Tips: Enter revenue and COGS in dollars. Both values must be positive numbers, and revenue must be greater than zero. The calculator will display the gross profit margin as a percentage.

5. Frequently Asked Questions (FAQ)

Q1: What's a good gross profit margin?
A: This varies by industry. Generally, 20-30% is average, 30-40% is good, and 40%+ is excellent, but always compare to industry benchmarks.

Q2: Can gross profit margin be negative?
A: Yes, if COGS exceeds revenue, indicating you're selling products for less than they cost to produce - an unsustainable situation.

Q3: How does this differ from net profit margin?
A: Gross profit only considers COGS, while net profit considers all expenses including operating costs, taxes, interest, etc.

Q4: Why track gross margin over time?
A: Tracking helps identify trends in production costs, pricing power, and potential issues before they affect net profits.

Q5: How can I improve my gross margin?
A: Options include increasing prices, reducing production costs, improving operational efficiency, or changing product mix.