In accounting and business finance, GP% stands for Gross Profit Percentage (often used interchangeably with Gross Profit Margin or Gross Margin).
First, subtract the COGS from a company's net sales. This is its gross revenues minus returns, allowances, and discounts. Then divide this figure by net sales to calculate the gross profit margin as a percentage.
Gross profit (GP) is the number of dollars of profit (dollars billed minus expenses and dollars paid) your business earns, while gross margin (GM) is the percentage of your total billable revenue that constitutes profits (dollars of profit divided by total revenue dollars).
A 20% gross profit margin means that for every dollar of revenue a business earns, it keeps 20 cents as gross profit after covering the direct costs (Cost of Goods Sold, or COGS) of producing or acquiring the goods or services sold; the remaining 80 cents goes to paying for those direct costs. This metric shows how efficiently a company converts revenue into profit before considering operating expenses, interest, and taxes.
Gross profit is the difference between net revenue and the cost of goods sold. Total revenue is income from all sales, while considering customer returns and discounts.
If margin is 30%, then 30% of the total of sales is the profit. If markup is 30%, the percentage of daily sales that are profit will not be the same percentage. Some retailers use markups because it is easier to calculate a sales price from a cost.
Differences between Gross Profit and Gross Margin
While gross profit and gross margin are measures of a company's profitability, they reveal different information about its financial health. Gross profit is an absolute dollar amount, while gross margin is a percentage.
Gross profit margin (calculation)
The gross profit margin is your gross profit divided by revenue, times 100.
A gross profit margin of over 50% is healthy for most businesses. In some industries and business models, a gross margin of up to 90% can be achieved. Gross margins of less than 30% can be dangerous for businesses with high gross costs.
For example, if your product costs $100 and sells for $125: Gross Profit = $125 – $100 = $25. Gross Profit Margin = $25 / $125 × 100 = 20%
The General Partner (GP), sometimes referred to as the Deal Lead, is the individual or entity that manages and makes the investment decisions for a private equity or venture capital fund. GPs play a pivotal role in the structure of such funds and are instrumental in the fund's overall performance.
What is a good GP number to aim for? Generally in a hospitality business, you should be aiming to achieve minimum 70% gross profit across all of your sales mix. Some items will likely be lower than 70%, and some greater.
It shows how efficiently you're turning revenue into profit before accounting for other expenses like salaries, rent, or marketing. Tracking gross profit over time helps you understand the real performance of your core operations.
You calculate your gross profit (revenue minus cost of goods sold), then divide that by your total revenue. To express it as a percentage, multiply the result by 100. For example, if your revenue is £50,000 and your cost of goods sold is £20,000, your gross profit is £30,000.
For example, if a product sells for $100 and its cost of goods sold is $75, the gross profit is $25 and the gross margin (gross profit as a percentage of the selling price) is 25% ($25/$100).
To take this one step further we should look at what our Gross Profit Percentage is (GP%). This can be achieved with a simple formula: (Net Selling Price – Net Cost) / Net Selling Price. So, for the same example as above the GP% on the Mojito sold at £8.50 will be 80%
On the face of it, a gross profit margin ratio of 50 to 70% would be considered healthy, and it would be for many types of businesses, like retailers, restaurants, manufacturers and other producers of goods.
Subtract all expenses, including cost of goods sold and operating expenses, from the total revenue to get the gross profit. Subtract other expenses such as interest payments and taxes from the gross profit to get the net profit.
A Good Gross Profit Margin is around 30 – 35% on average, but varies widely by industry. Refer to our averages listed in this post to determine if your business is tracking well with the competition.
Calculating Gross Margin in Excel
Here's a breakdown of the formula: Subtract COGS from Total Revenue to find the gross profit. Divide the gross profit by Total Revenue. Multiply the result by 100 to express it as a percentage.
Gross profit percentage focuses only on direct costs, while net profit margin includes all expenses. Operating Margin. The percentage of revenue left after covering operating expenses. Gross profit percentage does not consider operating expenses, only direct costs.
Gross profit margin formula example
Markup is the retail price for a product minus its cost but the margin percentage is calculated differently. The markup in our example is the same as gross profit or $30 because the revenue was $100 and costs were $70. Markup percentage is shown as a percentage of costs, however, rather than a percentage of revenue.
Gross Profit percentage is a measure of profitability that shows your percentage of earnings AFTER you subtract the cost of “producing” those products or services. However, that percentage is BEFORE you pay for other company costs and taxes. You want that percentage to be as high as it can reasonably be.