1. What is Gross Profit Margin?

Gross Profit Margin is a financial metric that shows what percentage of revenue exceeds the cost of goods sold (COGS). It indicates how efficiently a company uses labor and supplies in production.

2. How Does the Calculator Work?

The calculator uses the Gross Profit Margin formula:

Where:

• Revenue — Total income from sales
• COGS — Direct costs attributable to production

Explanation: The formula calculates the percentage of revenue that exceeds production costs, showing profitability before operating expenses.

3. Importance of Gross Profit Margin

Details: This metric helps businesses assess production efficiency, pricing strategies, and compare performance against industry benchmarks.

4. Using the Calculator

Tips: Enter both revenue and COGS in the same currency. Values must be positive numbers, with revenue greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What's a good gross profit margin?
A: Varies by industry, but generally 20-30% is decent, 50%+ is excellent. Service businesses often have higher margins than manufacturers.

Q2: Can gross profit margin be negative?
A: Yes, if COGS exceeds revenue, indicating serious pricing or production issues.

Q3: How often should I calculate this?
A: At least quarterly for established businesses, monthly for startups or businesses with tight margins.

Q4: What's the difference between gross and net profit margin?
A: Gross margin considers only COGS, while net margin includes all operating expenses, taxes, and interest.

Q5: How can I improve my gross margin?
A: Increase prices, reduce production costs, improve operational efficiency, or change product mix.