Gross Profit Margin Calculator
This gross profit margin calculator determines the percentage of revenue that exceeds the cost of goods sold and represents the profit available to cover other expenses and generate net income.
Jan 15 2021
- Use The Calculator
- Calculator instructions
- What Is Gross Profit Margin?
- How do you calculate gross profit margin?
- How do you interpret gross profit margin?
To use this simple margin calculator you need two values: Gross Profit and Revenue. Enter these values into the respective fields on the calculator without prefxing the number with any currency symbols. Next, press the Calculate button and your gross profit margin will be instantly calculated and displayed as a percentage below the calculator.
What Is Gross Profit Margin?
The gross margin ratio helps to determine how a business is able to control production costs, discounting on both the sale and puchase of the products it may buy or sell. It measures the difference between what it costs to produce a product and what you are selling it for.
To take operating expenses into account as well please use our operating profit calculator.
How Do You Calculate Gross Profit Margin?
Gross profit margin is calculated as Gross Profit divided by Revenue, and is expressed as a percentage.
How Do You Interpret Gross Profit Margin?
Gross profit margins can vary widely between industries and even companies and this can make comparison difficult. However, looking at gross margin trends can be very informative. For example, if gross margin is falling year after year it indicates that a company could be coming under pressue, as a greater proportion of every pound generated in sales is going to cover costs rather than adding to profit.
Sometime it is helpful to consider the gross profit margin together with other metrics, such as sales volume. For example, what if sales volume is steadily increasing but gross profit margin is steadily decreasing? This could indicate that the sales team are discounting more and more aggressively to hit sales targets. Maybe this is because their incentives are misaligned with business goals. Or, maybe the product they are selling is coming under price pressure because other products in the market are now considered to be better by customers and discounting is the only way to secure sales.
Frequently Asked Questions
Have a question about this calculator? See our list of frequently asked questions below.
What is gross profit margin?
Gross profit margin is gross profit divided by revenue.
What is gross profit margin used for?
Gross profit margin measures a company health. It shows how much of every pound generated through sales can be used by the business versus how much must be paid out in direct costs to make a sale.
What is the formula for calculating gross profit margin?
Gross Profit Margin = Gross Profit / Revenue
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