Gross Profit Calculation Formula

Gross Profit Calculation Formula

1. Gross Profit = Sales Revenue – Cost of Goods Sold
2. Gross Profit = Operating Revenue – Operating Costs
3. Gross Profit = Selling Price (excl. tax) – Purchase Price (excl. tax) = Product Sales Revenue – Actual Cost at Time of Sale

Gross Profit

Gross profit refers to the portion of profit remaining after deducting the direct costs of the main business operations from sales revenue. These direct costs do not include administrative expenses, financial expenses, selling expenses, taxes, etc. For commercial enterprises, it is the balance of commodity sales revenue minus the original purchase cost of the goods. It is the counterpart of net profit, also known as the purchase-sales price difference. Since it has not yet deducted distribution expenses and taxes, it is not net profit, hence the term gross profit.

Gross Profit Margin

Gross profit margin is the percentage of gross profit to sales revenue (or operating revenue), where gross profit is the difference between revenue and the operating costs corresponding to that revenue.

Gross Profit Margin Calculation Formula

Gross Profit Margin = Gross Profit / Operating Revenue × 100% = (Operating Revenue from Main Business – Operating Costs of Main Business) / Operating Revenue from Main Business × 100%.

The level of gross profit margin generally depends on the following factors:

1. External factors: market competition, industry conditions, product life cycle, etc.
2. Internal factors: capital turnover rate, corporate marketing, brand effect, production processes, R&D costs, production costs, etc.

Sales Gross Profit Margin Calculation Formula

Sales Gross Profit Margin = (Net Sales Revenue – Product Cost) / Net Sales Revenue × 100%.

Sales Gross Profit Margin

This refers to the percentage of gross profit to sales revenue, also abbreviated as “gross profit margin,” where gross profit is the difference between sales revenue and cost of sales. Sales gross profit margin is the foundation of net profit margin on sales; without sufficient gross profit margin, a company cannot make a profit. The higher the sales gross profit margin, the smaller the proportion of sales costs in net sales revenue, and, given certain period expenses and other business profits, the higher the operating profit will be.

Classification of Gross Profit Margin

1. By product category: individual product gross profit margin, product category gross profit margin, comprehensive product gross profit margin.
2. By industry: gross profit margin on product sales for industrial enterprises, gross profit margin on commodity sales for commercial enterprises, gross profit margin for construction enterprises, gross profit margin for transportation, gross profit margin for tourism, catering and service industries.
3. By region: regional sales gross profit margin, project-specific gross profit margin.