Calculate the gross profit margin of your product. Simply add the cost of the item and your desired markup to find the sales price you should sell your products at, including your profit and gross margin.
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What is a Gross Profit Margin?
The Gross Profit Margin is the difference between the selling price of your product and the COGS (cost of goods sold). COGS describe all costs directly associated with the production of a product. This includes direct raw material and labour costs. It excludes any marketing or operating expenses.
How to calculate profit margin
Simply follow these five easy steps to calculate your gross profit margin:
- Find out your COGS (cost of goods sold), e.g.,
- Find out your selling price, e.g.,
$25. This is your revenue.
- Subtract your COGS from your revenue:
$25 – $10 = $15. The result is your gross profit.
- Divide your profit by your revenue:
$15 ÷ $25 = 0.6
- Express it as a percentage:
0.6 * 100 = 60%.
Gross profit margin formula
The Gross Profit Margin formula is as follows:
gross margin = 100 * (revenue - costs) / revenue. Note that margins are always expressed as a percentage. You can also simplify the formula to:
gross margin = 100 * profit / revenue. If you want to calculate the gross profit as an absolute ($) value, use:
gross profit = revenue - costs.
Want to know how much you should price your product for with a fixed margin? Use:
revenue = 100 * profit / margin. And if you need to know how much you can spend to purchase a product, then use:
costs = revenue - gross margin * revenue / 100.
Markup vs. margin
It’s important to understand the difference between markup and margin. The markup is the ratio of profit based on your costs (COGS), while the margin is the ratio of profit based on your sales price (i.e., customer-facing). Both metrics are expressed as a percentage.
How do I calculate a 20% margin?
- Turn 20% into its decimal form, 0.2.
- Subtract the 0.2 from 1. The result is 0.8.
- Divide the cost of your good (COGS) by 0.8.
- The result is the price you should sell your product to achieve a 20% profit margin.
Are profits and margins the same?
No. Profits are the absolute monetary value ($) of your gains from each sale (
profit = revenue - costs), while margins express the profit as a ratio of your revenue (
margin = profit / revenue). That’s why margins are always expressed as a percentage.
How do I calculate a 30% margin?
- Turn 30% into its decimal form, 0.3.
- Subtract the 0.3 from 1. The result is 0.7.
- Divide the cost of your good (COGS) by 0.7.
- The result is the price you should sell your product to achieve a 30% profit margin.
Want to learn how to calculate your net and operating profits? Then you should read my complete guide to profit margins.