The gross profit margin in business is a common formula that allows business owners and managers to determine what portion of sales goes toward profits. Each business industry has a typical gross profit margin companies can expect to make during their operations.
A basic gross profit margin formula is sales less cost of goods sold divided by sales. For example, a business with £58,500 in sales and £39,000 in cost of goods sold has a gross profit margin of 33 per cent. This formula applies to any company where financial figures are available for the formula.
Typical gross profit margins will be different for each business industry. The age of a business can also affect this formula as newer companies tend to not make a profit for some time. A gross profit margin goal for companies may be 50 to 60 per cent of sales for gross profit.
Companies may decide to use the net profit margin formula in addition to the gross profit margin formula. The net profit margin is net income divided by sales. This represents what per cent of sales will remain as net income, which is the profit for the business.