How to Calculate Gross Profit on Cost of Sales

Reviewed by: David Chen, CFA

Use this precise calculator to quickly determine your Gross Profit on Cost of Sales percentage (also known as Mark-up Percentage). Simply input your total Sales Revenue and the corresponding Cost of Sales (CoS) to get the final margin.

Sales Revenue ($)

Cost of Sales (CoS) ($)

Gross Profit on Cost of Sales (%)

0.00%

Calculation Details

The steps will appear here after a successful calculation.

how to calculate gross profit on cost of sales Formula

Step 1: Calculate Gross Profit (GP) GP = Sales Revenue – Cost of Sales

Step 2: Calculate Gross Profit on Cost of Sales (%) GP on Cost of Sales (%) = (GP / Cost of Sales) × 100

Formula Sources: Investopedia (Mark-up), Corporate Finance Institute (Markup)

Variables

Sales Revenue: The total amount of money realized from the sale of goods or services.
Cost of Sales (CoS): The direct costs attributable to the production of the goods sold by a company, also known as Cost of Goods Sold (COGS).
Gross Profit (GP): The profit a company makes after deducting the costs associated with making and selling its products, or providing its services.

What is how to calculate gross profit on cost of sales?

Gross Profit on Cost of Sales is a profitability metric that measures the percentage of profit generated from the cost of the goods sold. It is generally synonymous with the Markup Percentage. This metric is crucial for pricing decisions, as it shows how much the selling price exceeds the direct cost.

Unlike Gross Profit Margin (which uses Sales Revenue as the denominator), Gross Profit on Cost of Sales (which uses Cost of Sales as the denominator) tells a business how much profit they add onto their initial cost to arrive at the selling price. For example, a 50% GPOCS means you are adding 50 cents of profit for every dollar of cost.

How to Calculate how to calculate gross profit on cost of sales (Example)

Imagine a company, ‘Alpha Gear,’ has the following figures for the quarter:

Sales Revenue: $150,000
Cost of Sales (CoS): $100,000

Calculate Gross Profit (GP): $150,000 (Sales Revenue) – $100,000 (CoS) = $50,000 (GP)
Apply the GPOCS Formula: $(\$50,000 / \$100,000) \times 100$
Final Result: $0.5 \times 100 = 50\%$

Alpha Gear’s Gross Profit on Cost of Sales is 50%, meaning they add 50 cents of profit for every dollar of cost.

Frequently Asked Questions (FAQ)

What is the difference between Gross Profit Margin and Gross Profit on Cost of Sales?

Gross Profit Margin is calculated as (Gross Profit / Sales Revenue) × 100, using revenue as the base. Gross Profit on Cost of Sales (Mark-up) is calculated as (Gross Profit / Cost of Sales) × 100, using cost as the base. They measure two different ratios of profitability.

Why is this metric important for business owners?

It is essential for setting pricing strategies. It directly informs a business owner how much to mark up their cost price to achieve a desired profit level. It’s often easier to manage pricing based on cost than on revenue.

What is a good Gross Profit on Cost of Sales percentage?

This varies widely by industry. Retail typically sees higher mark-ups than wholesale. Generally, a higher percentage is better, but it must be balanced against market competition and volume of sales.

Can the Cost of Sales be zero?

No, Cost of Sales represents the direct costs of generating revenue. If CoS were zero (for a physical product), the formula would involve division by zero. If a service-based business has minimal direct costs, CoS will be very small, resulting in a very high mark-up.

how to calculate gross profit on cost of sales