Gross Profit Formula: How to Calculate Gross Profit and Margin

Gross profit and gross profit percentage formulas

One period’s gross profit and margin

The default values use one revenue total and one cost-of-goods total. The output separates the currency spread from the percentage margin.

Illustrative inputs; currency amounts below use USD. Rates and prices are assumptions, not live quotes.

Revenue

$50,000.00

Cost of goods sold

$32,000.00

Step-by-step calculation

1. Gross profit = revenue 50,000 − cost of goods sold 32,000 = 18,000.
2. Gross margin = 18,000 ÷ 50,000 × 100 = 36%.
3. COGS ratio = 32,000 ÷ 50,000 × 100 = 64%. The two percentages sum to 100%.

Intermediate figures are rounded for reading. Results use the full calculation precision.

Money available versus percentage efficiency

Gross profit indicates the money available to cover operating expenses and profit; gross margin makes businesses or periods of different sizes easier to compare.

Keeping cost classifications consistent

Payroll, rent and marketing may be operating expenses rather than cost of goods sold. Mixing classifications can make gross margin incomparable across periods.

• Revenue and cost of goods sold cover the same reporting period.
• The user applies a consistent cost classification.
• Operating expenses, tax and financing costs are excluded.

Calculations related to gross profit

The following tools examine neighbouring parts of the same calculation without changing the inputs or assumptions used above.