Gross profit margin definition

Gross profit margin is a pricing calculation managers use to produce a desired level of gross profit. Expressed as a percentage, gross margin is used in two ways: to price a unit of good or service sold; to demonstrate the gross profit performance of an operating period, such as a month or year.

Gross profit margin is calculated by dividing the cost of an item (or the total cost of goods sold for a period) by the selling price (or total sales for the period), and then subtracting that number from 1.0.

Example: To calculate the gross profit margin for an item that costs $5 and sells for $9 ...

5 ÷ 9 = .56. Subtract .56 from 1.0 = 44% gross margin.

Search again for the difference between margin and mark-up.