Gross profit margin is one of three profitability ratios. Click on this link for an explanation of the difference between profit and profitability. The gross profit margin compares the gross profit figure with sales. The gross profit margin shows what percentage of the sales (or turnover) is gross profit.
Use the following method to work out the gross profit margin:
Gross Profit Gross Profit
Margin = _________ x 100%
For example if my turnover is £10000 and my gross profit is £6000, I would use the following calculation to work out my gross profit margin
Gross Profit £6000
_________ = _____ x 100 = 60%
This means that my gross profit margin is 60%, or to put it another way 60 percent of my money from sales is gross profit. This sounds like a good profit but always remember that gross profit does not take all of your costs into account. If I have other expenses this will reduce the amount of profit I have made.