Quick Definition

Gross profit margin is a financial metric that measures the percentage of revenue that exceeds the cost of goods sold (COGS). It indicates how efficiently a company uses its resources to produce and sell products at a profit.

Formula

Examples

• 1A company with $200,000 in sales and $150,000 in COGS has a gross profit margin of 25%, showing it retains $0.25 from each dollar of sales after covering the cost of goods sold.
• 2A retail clothing store with higher gross profit margins than its competitors can reinvest more in marketing and product development.
• 3During a fiscal year, a tech company increases its gross profit margin from 30% to 40% by reducing production costs, demonstrating improved operational efficiency.
• 4A grocery store chain with a low gross profit margin might struggle to cover other operating expenses, highlighting the importance of managing production costs.

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