This document discusses how to calculate gross profit margin and net profit margin. Gross profit margin is calculated as gross profit divided by total revenue. Gross profit is revenue minus the cost of goods or services sold. Net profit margin is calculated as net profit divided by total revenue. Net profit is gross profit minus all other business expenses. Understanding how to calculate profit margins provides insight into the health and performance of a business.

1. How to Calculate Profit Margin
Blaine Bertsch - Founder, Dryrun.com

2. Gross Profit Margin vs.
Net Profit Margin
Inordertocalculateyourprofitmargin,firstyou’ll
needtofirstundertstandthedifferencebetween
grossprofitandnetprofit.
Two types of profit margin:
Gross Profit Margin & Net Profit Margin

3. Gross Profit
Grossprofitcalculatesthetotalincomefromyour
goodsorservicesminusthecostofthosegoodsor
services(sometimesreferredtoasCOGS).
Revenue from goods/services - Cost of Goods/Services = Gross profit

4. Theonlyexpensesincludedaredirectly relatedto
thecreationofthosespecificgoodsandservices.
Not included in calculation
Other expenses, such as:
•payroll
•rent&utilities
•taxes
•otherbusinessexpenses
Expenses Included in
Gross Profit

5. See Your Profit & Loss Statement
(P&L,alsocommonlycalledan‘IncomeStatement)
Top lineofyourP&L: Revenue
Cost of goods sold(COGS)onP&L:Expenses*
*expensesforthosegoodsorservicesonly
Gather the Numbers
Revenue from goods/services - Cost of Goods/Services - Other Business Expenses = Net profit
Take my FREE MINI-COURSE for more detail on calculating profit margins and
discover how to put the knowledge to use in your business!
Get Started in minutes! >>

6. Net Profit
Netprofitalso includesallbusinessexpenses,not
justthedirectcostofgoodsorservices.
Revenuefromgoods/services-CostofGoods/Services
-OtherBusinessExpenses=Net profit

7. Expenses Included
in Net Profit
ALLbusinessincomeandexpensesareincludedin
thenetprofitcalculation.
Included in calculation
Other income & expenses, such as:
•investmentincome
•rent,utilities&payrollexpenses
•allotherbusinessexpenses

8. *Byincludingallbusinessesexpensesinanetprofitcalculationa
moredetailedpictureemergesofthebusinesshealth.
See Your Profit & Loss Statement
(P&L,alsocommonlycalledan‘IncomeStatement)
Bottom LineoftheP&L: Net Profit*
Gather the Numbers
Revenue from goods/services - Cost of Goods/Services - Other Business Expenses = Net profit

9. Calculating Profit Margin

10. 1. Gross Profit Margin
Grossprofitmarginisapercentageofincome
retainedasprofitafteraccountingforthedirect
costofthegoodsorservices
Gross Profit / Total Revenue x 100 = Gross Profit Margin

11. RevenuefromthetoplineofyourP&Lis$10,000
CostofgoodsorservicesfromyourP&Lis$8,000
Yourgrossprofitis$10,000-$8,000=$2,000
Example: Gross Profit
Margin Calculation
Gross profit margin is $2,000 / $10,000 x 100 = 20%

12. Net Profit / Total Revenue x 100 = Net Profit Margin
2. Net Profit Margin
Netprofitmarginisapercentageofincome
retainedasprofitafteraccountingforall
businessexpenses

13. RevenuefromthetoplineofyourP&Lis$10,000
CostofgoodsorservicesfromyourP&Lis$8,000
allotherexpensesareanadditional$1,000
YourNetprofitis$10,000-$8,000-$1,000=$1,000
Example: Net Profit
Margin Calculation
Net profit margin is $1,000 / $10,000 x 100 = 10%

14. It’s important to understand how
to calculate profit margin to have
a thorough understanding of the
health of your business.
Bothgrossprofitmarginandnetprofitmarginaretwocommon
keyperformanceindicators(KPIs)thatbusinessescloselymonitor.
The Value of Knowing
Your Profit Margin

15. Sign up for a 30 day free trialofDryrunandgaininsightinto
yourbusinesswithasimplewaytopicturerevenue,profitand
cash flowscenarios.
Blaine Bertsch
Founder Dryrun.com
Take my FREE MINI-COURSE for more detail on calculating profit margins and
discover how to put the knowledge to use in your business!
Get Started in minutes! >>