Gross Profit Calculator

How it is calculated

Gross profit is what is left of sales after the direct cost of producing or buying what you sold: gross profit = revenue − COGS. Gross margin turns this into a share of sales: margin = gross profit / revenue × 100. Revenue is the sales for the period and COGS (cost of goods sold) is the direct cost of those items, such as materials, direct labour or the purchase price of goods for resale. Both figures should cover the same period and the same currency. Revenue must be above zero; COGS is not validated, so a COGS larger than revenue gives a negative profit and margin. Overheads such as rent, marketing and salaries are not part of COGS, which is why this is called gross and not net profit.

Common mistakes

• Mixing up margin and markup. A cost of 32,000 sold for 50,000 is a margin of 36% but a markup of 56.25%, because markup is divided by cost, not by revenue.
• Including overheads (rent, advertising, office salaries) in COGS, which shrinks gross profit and mixes it with operating profit.
• Using the purchase cost of all stock bought rather than just the cost of the items actually sold in the period.
• Entering revenue including VAT or sales tax while COGS is without it, which inflates the margin.