Gross profit is a simple comparison of cost of goods the company sells to the income derived from those goods. The gross profit margin expresses the profits as a percentage of the total sales revenue generated. It can also be used to compare the company’s current status to its last performance, especially when there are significant price fluctuations of the goods produced.
Subtract the total costs of your goods from the revenues the sales generate to find your gross profit. For example, if you purchase $10,000 of goods and sell them for $11,800, you would subtract $10,000 from $11,800 to get a profit of $1,800.
Divide your gross profit by your total revenue generated. In this example, you would divide $1,800 by $11,800 to get 0.15.
Multiply the result from Step 2 by 100 to find the gross profit margin percentage. Finishing the example, you would multiply 0.15 by 100 to find that your gross profit margin equals 15 percent