How to calculate your gross margin?

To calculate your gross profit margin percentage, whether on a single item or your whole company the process is the same, dividing your gross profit by your total revenue.

Some useful terms to understand which relate calculating your Gross Margin:

• Gross profit: the difference between cost of your goods (or services) and what you sold your sold them for (Revenue/Sales)
  • i.e. Gross Profit = Revenue (Sales) – Cost of your Goods (or services) Sold.
• Revenue/Sales: All income coming from your Sales of goods or serives
  • i.e. Quantity of Goods (services) Sold x Sales Price of Goods (services)
• Net profit: the difference between Gross profit and other business operating costs like electric, gas, tax, bank charges.
  • i.e. Nett Profit = Gross Profit – Business Operating Costs

Example

• Total Revenue (Sales) = £199.99
• Total Cost of Goods sold = £78.99
• Gross Profit: £199.99 – £78.99 = £121.00
• Gross Margin: £121.00 / £199.99 = 60.5%

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