Gross Profit = Revenue − COGS. Gross Margin % = (Gross Profit / Revenue) × 100.
Revenue
Software companies: 70–80% GM. Retail: 30–50%. Restaurants: 60–70%.
This tool is most useful during planning and review cycles: setting targets, evaluating performance, or comparing options. Standardised metrics make comparisons across periods or business units reliable.
The most consequential business calculation error is excluding indirect costs from the calculation. Labour, overhead, and opportunity cost are frequently omitted when evaluating profitability, producing overstated margin figures.
A marketing manager calculates campaign ROI: £15,000 spend, £72,000 in attributed revenue, 35% gross margin. Net profit from the campaign: £10,200. ROI: 68%. The figure justifies the budget allocation and provides the benchmark for the next campaign.
Gross Profit Margin = (Revenue − COGS) / Revenue × 100. It shows how efficiently you produce your product.
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