Gross profit margin
Gross profit margin is gross profit expressed as a percentage of revenue, showing how much of each euro of sales remains after covering the direct cost of goods sold; higher margins signal stronger pricing power or lower production costs.
FrameworkRatio analysis
See it move
A retailer earns €500,000 in revenue and incurs €350,000 in cost of goods sold, leaving €150,000 of gross profit. Dividing gross profit by revenue gives a gross profit margin of 30%: every euro of sales leaves 30 cents after covering direct production and procurement costs, before operating expenses such as rent and wages are deducted.
The formula
Variables
- Revenue (total sales for the period) (€)
- Cost of goods sold (direct costs of goods or services sold) (€)
Measures how much of each euro of sales remains after direct production or procurement costs.
Check yourself
A retailer reports revenue of €800,000, cost of goods sold of €560,000, and operating expenses (rent, wages and marketing) of €80,000 for the year. What is the gross profit margin?