Gross margin

What is gross profit margin?

Gross margin, often known as gross profit margin, demonstrates how much profit a business has left after deducting the direct costs of production or services.

The gross margin is frequently stated in percentage terms.

While you can use gross margin to compare businesses with different sales levels, it is more complicated to use as a comparison across various industries. That’s because every business has a different margin.

Gross profit margin formula?

The formula for calculating gross margin is Gross Margin = Net Sales – COGS.

Net sales refer to the total sales after deductions for discounts and returns. The cost of goods sold, or COGS comprises direct labor and material costs.

Suppose you own a T-shirt manufacturing business. You sell each T-shirt for £30. Your COGS is £15 per shirt.

● Gross Margin = £30 – £15
● Gross Margin (Percent) = [(£30 – £15) / £30] X 100

Your gross margin for each T-shirt you trade is 50%.