How to Calculate Gross Profit
What is Gross Profit?
Gross profit is revenue minus the direct costs of producing goods or services (COGS). It represents the efficiency of production and pricing strategy. Gross profit margin = (Revenue − COGS) / Revenue × 100%.
Step-by-Step Guide
- 1Identify total revenue for the period
- 2Calculate COGS: direct materials, direct labour, and direct overheads
- 3Gross profit = Revenue − COGS
- 4Gross margin % = Gross profit / Revenue × 100
Worked Examples
Input
Revenue £500k · COGS £300k
Result
£200k gross profit (40% margin)
Typical for mid-market retail
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