What is Gross Profit Percentage?

by Daniella Lauren; Updated September 26, 2017

Business owners and managers often measure their company’s performance by applying mathematical formulas to their financial information. One such formula is the gross profit percentage, which requires information from the company’s income statement.

Identification

To calculate gross profit percentage, take the gross sales for a certain period and subtract the cost of goods sold divided by gross sales. For example, a company with $100,000 in gross sales and $85,000 in cost of goods sold has a gross profit percentage of 15 percent.

Significance

The gross profit percentage allows companies to figure out what portion of sales is left to pay business expenses. A gross profit percentage of 15 percent means that $.15 of each dollar is left to pay the company’s expenses for the month.

Considerations

Companies with multiple product lines can apply the gross profit formula to each item, allowing them to discover which products have the highest gross profit. Although simple, it does provide information for business owners and managers to measure financial performance.

About the Author

Daniella Lauren has worked with eHow and various new media sites as a freelance writer since 2009. Her work covers topics in education, business, and home and garden. Daniella holds a Master of Science in elementary education and a Bachelor of Arts in history from Pensacola Christian College.