Gross Profit Margin is a financial metric that measures how much profit a company makes after deducting the cost of goods sold from its revenue.
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Gross profit margin is a financial metric that showcases the profitability of a company’s core operations by analyzing the relationship between its revenue and the cost of goods sold. It’s the percentage of revenue that remains after deducting the direct costs associated with producing or purchasing the goods or services sold by the company.
To calculate your gross profit margin, you need two key figures – revenue and the cost of goods sold.
Once you have these numbers, you can use the following formula:
Gross Profit Margin = (Gross Profit / Revenue) * 100
For example, let’s say a company generates $500,000 in revenue and incurs $250,000 as the cost of goods sold.
The gross profit for that company would be $250,000. Now, we can apply the formula:
Gross Profit Margin = ($250,000 / $500,000) * 100
In this example, we find that the gross profit margin is 50%.
Unfortunately, the only correct answer to what a good gross profit margin is – it depends.
Because there are so many factors (e.g., industry, size, business model) that influence your specific gross profit margin, it can be hard to pinpoint what’s good without digging deep into your performance. That said, we pulled out some specific numbers from our product that you might find useful.
A good gross profit margin for SaaS and B2B companies in Xero is from 60% to 80%, according to Xero Financial KPIs for SaaS and B2B Companies.
A good gross profit margin for all companies in QuickBooks is around 67%, according to QuickBooks Benchmarks for All Companies.
If you want to stay on top of future trends and be able to instantly compare your performance to companies just like yours (in any given industry), you can join our Benchmark Groups – it’s free for everyone!
Depending on your industry and specific business model, some strategies will work better than others.
And while one-size-fits-all strategies don’t really exist, there are some tactics that industry experts in most industries turn to in their own businesses:
More resources to help you improve:
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To track Gross Profit Margin using Databox, follow these steps:
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Gross margin is the percentage of revenue remaining after deducting the cost of goods sold, while net margin is the percentage of revenue remaining after subtracting all expenses, including operating expenses, interest, and taxes.
Gross margin is a percentage that represents the proportion of revenue remaining after deducting the cost of goods sold, while gross profit is the actual monetary value.
Gross Profit (Budget) is a financial metric that tracks the amount of revenue a company generates after deducting the cost of goods sold. It helps businesses assess their profitability by comparing the budgeted gross profit to actual results.
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The Cash Received by Bank Account metric tracks the total amount of cash received by a specific bank account over a given period of time. It includes all payments, deposits, and other sources of revenue that have been credited to the account.
The Current Liabilities by Liability metric measures the proportion of a company's short-term debts compared to their long-term debts, providing insight into the company's ability to meet its obligations in the near future.
Return on Investment (ROI) is a financial metric used to evaluate the profitability of an investment. It measures the gain or loss of an investment relative to the initial cost, expressed as a percentage per year (p.a.).
The Bank fees metric tracks the charges levied by a company's bank for various services such as transaction fees, overdraft fees, and account maintenance fees.
Quotes Sent Value measures the total monetary amount of quotes sent to customers during a specific timeframe in Xero accounting software.
Quotes Declined Value is a metric showing the total value of customer quotes that were rejected or declined, indicating potential issues in sales strategies and areas for improvement.