What is gross profit margin?

Gross profit margin (definition)

Gross profit margin is the percentage of sales income you have left after paying for the stuff you sold.

A lot of your sales income will go straight back out the door to pay for the goods or services you provide. Gross profit margin is the portion left over. Some of it will be used to pay for operating expenses like rent, office supplies, and loan repayments. The rest becomes your net profit.

Gross profit margin formula shows that gross profit divided by revenue, times 100, equals gross profit margin.

Gross profit margin shows what portion of sales income you can keep in the business

Whereas gross profit is a dollar amount, gross profit margin is a percentage. A low gross profit margin makes it harder to cover other expenses like rent and energy. And, in turn, it reduces your chances of making a net profit.

See other terms

Net profit margin

You can search for experts in our advisor directory

Find an advisor
Xero Small Business Guides

How to manage your finances and cash flow

Read article
Fixed asset management

Keep track of your performance with financial reporting

Find out more