What would your investors be interested in while you are running a startup or are expanding a well-settled business?

For sure, the ‘profit margin.’

One of the essential aspects of any business, especially if it’s a small and medium enterprise, is crunching numbers. 

How does your business calculate gross profit? Do you have online accounting software for business, or do you manually?

We help you calculate gross profit margin to have a clear idea of your business’s financial position. 

So, here we go!

How to calculate gross profit margin? Formula and example

“Gross Profit Margin” is the resultant factor of crunching numbers. It is the difference between revenue and cost of goods sold divided by revenue.

Here is an illustration and formula on how to find gross profit margin.

How To Calculate Gross Profit Margin Formula And Example

Gross profit margin implies that you have made a profit in the trade and shows the percentage of revenue left after the cost of goods sold. This figure does not consider other expenditures such as payroll, rent, bills, and other utilities. Gross profit margin can be derived by dividing gross profit by sales.

Many people find it easier to work with gross margin because it tells you how much of the sales revenue or price is the profit. This is basically for the gross margin as a percentage of revenue. 

If you have online accounting software for businesses such as Moon Invoice, you can quickly generate the different business reports with a click!

What is markup and margin profit?

Usually, gross margin is used in sales in the following manner. Retailers can measure their profit using two basic methods, markup and margin, describing the gross profit. 

What is Markup and Margin Profit

These two methods give different percentages, but both accurately describe the retailer’s profit. Therefore, it is essential to specify which method you use when referring to a percentage of a retailer’s profit.

Some retailers use margins to calculate profits from a sales total easily. For example, if your margin is 30%, 30% of your sales total is profit. However, if your markup is 30%, the percentage of your daily sales that are profit will not be the same.

Some retailers use markups because it is easier to calculate a sales price from a cost using markups. For example, if your markup is 40%, your sales price will be 40% above the item cost. However, if your margin is 40%, your sales price will not be equal to 40% over cost (it will be approximately 67% above the item cost).

To give you an example of gross profit margin with very simple numbers, let’s say you spend INR 500 on raw material products which become your cost of goods sold. Then, you collect INR 900 in revenue. When you subtract your cost of goods sold from your sales (revenue), the result is INR 400. Then, if you divide that number by your revenue, the equation is INR 500 / INR 900 = 0.55. Finally, multiply 0.55 by 100, and you get your gross profit margin of 55%.

It’s fine when it’s small calculations, but when you have multiple sellers, vendors, clients, or customers and are heavily dealing with numbers, it’s best to opt for software that can help you crunch all those financial numbers.

Generate Profit and Loss Statements Online

How does gross profit margin help your business to stay on top?

The profit margin that the investors are more concerned about before investing in your firm. Even if you are going to acquire a firm, the first thing you would like to inquire about is the firm’s profit or loss for the last few quarters. 

Tip: The healthy gross profit indicates the start towards achieving a better profit. Hence, any firm needs to focus on the gross profit margin. 

Now, you must be wondering what a healthy gross profit is?

 what is a healthy gross profit

Why Moon Invoice for business accounting?

Free invoice generator apps such as Moon Invoice can relieve your everyday tasks. Moon Invoice, the free invoice maker, helps you track those numbers straight from the reports and calculate gross profit margin and other metrics. Below listed are a few other excellent benefits of Moon Invoice.

1. Multiple payment methods

Add a preferred payment processing channel for faster payments that improve your business cash flow. Also, get the benefit of PayPal button support.

2. Recurring invoicing

Leave no room for error! Recurring invoices quickly generate daily, monthly or yearly invoices and get a reminder about overdue invoices.

3. On-time payments, every time

On-time Payments, Every Time-Gross Profit Margin

Always know beforehand about invoices & expenses that become overdue. Then, easily automate payment reminders and get paid on time.

4. Bill in any currency

Speak in your clients’ financial language with multiple currency options available. No obstacle to doing business by selling products or services overseas.

5. Business reports

One of the best things about our online accounting software for business is that it helps view and download various business reports, including P&L, Sales reports, tax reports, purchase reports, etc. 

Also Read: Accounting Basics: How to Calculate Gross Profit?

Did you get it?

I hope the blog has helped how to find gross profit margin; in any case, if you are still confused, you can download our free invoice generator app. Then, start inputting all the company details and help our online billing software guide you with accurate business reports. 

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