Small Business calculator

Gross profit margin ratio calculator

Cost of Goods Sold
Gross Profit Margin Ratio
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How to use this calculator
Your latest income statement holds the numbers you need to calculate your company's gross profit margin ratio.
  1. Fill in your net sales.
  2. Fill in your cost of goods sold.
  3. Press "calculate."

A gross profit margin of 0.33:1 means that for every dollar in sales, you have 33 cents to cover your basic operating costs and profit.

Some business owners will use an anticipated gross profit margin to help them price their products. While other factors -- such as competition and demand -- may play into pricing decisions, a gross profit margin is a good starting point for product pricing. For example, if a product costs $8 to produce, and your gross profit margin is 20 percent, you can calculate your pricing by dividing your cost by (1-.0.2). In this case, $8 divided by .8 would yield a price of $10.

You can also use your gross profit margin ratio to help you set and monitor sales goals for your company.

Because costs for raw materials, labor and manufacturing expenses all play into your profit margin ratio, a change in this ratio over time could mean it's time to look for new suppliers or review your pricing structure.
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