![]() (Net revenue – direct expenses) Net revenue x 100% = Gross profit margin ratio Example of gross profit margin That number is divided by net revenues, then multiplied by 100% to calculate the gross profit margin ratio. The gross profit margin is calculated by subtracting direct expenses or cost of goods sold (COGS) from net sales (gross revenues minus returns, allowances and discounts). How do you calculate gross profit margin? “If you don’t get your gross margin to a point where your revenues cover your production costs, you’re business is in trouble,’’ says Sean Beniston, a senior client partner with BDC Advisory Services in Vancouver, B.C. Arguably, it’s the most important of the three profitability measures because without a high enough gross profit margin, you won’t have a viable business-at least, not for long. It’s one of three major profitability ratios, the others being operating profit margin and net profit margin. The gross profit margin tells you what your business made after paying for the direct cost of doing business, which can include labour, materials and other direct production costs. Growth & Transition Capital financing solutions Kauffman Fellows Program Partial Scholarship ![]() Venture Capital Catalyst Initiative (VCCI) Industrial, Clean and Energy Technology (ICE) Venture Fund ![]()
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