Calculating Gross Profit Margin
Gross Profit Margin = (Net Sales - Cost of Goods Sold) ÷ Net Sales.
For example A company profits $2500 selling goods that cost $1000 to make. Its gross profit margin is
Solving the equation gives us a Gross Profit Margin of 60%. That means that 60% of the revenue goes into making its products so the other 40% can be used for various other expenses. Another way to think of it is for every dollar made by the company, 60 cents goes towards the production and the 40 cents left over from that dollar goes to operating costs and profit. The lower the Gross Profit Margin percent is, the more profit that you will get to take home with you.