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What Is Gross Profit Margin?

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what is gross profit margin

Definition of Gross Profit Margin

  • The gross profit margin compares the difference between the revenue and cost of goods sold, against revenue.
  • It is represented in the form of a percentage.
  • It is used to evaluate the company’s financial health.
  • A higher markup price and lower cost of goods sold would increase the gross profit margin.

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What is the Formula for Gross Profit Margin?

  • The gross profit margin is calculated by dividing the difference between revenue and cost of goods sold by revenue.

      Gross profit margin =  (Revenue – COGS) / Revenue

Gross Profit Margin in Practice

  • During COVID- 19, the revenue of Smile Juice dropped down to $87,900; however, the cost of goods sold remains the same at $56,000. What is Smile Juice’s gross profit margin?
  • ($87,900 – $ 56,000)/ $87,900 = 36.29%

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