Gross Profit Calculator

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Gross Profit Margin Calculator

Gross Profit: $0.00

Gross Profit Margin: 0.00%

function calculateGrossProfit() { var revenue = parseFloat(document.getElementById("revenue").value); var cogs = parseFloat(document.getElementById("cogs").value); var resultArea = document.getElementById("resultArea"); var grossProfitResult = document.getElementById("grossProfitResult"); var marginResult = document.getElementById("marginResult"); if (isNaN(revenue) || isNaN(cogs)) { alert("Please enter valid numerical values for Revenue and COGS."); return; } if (revenue <= 0) { alert("Revenue must be greater than zero to calculate margin."); return; } var profit = revenue – cogs; var margin = (profit / revenue) * 100; grossProfitResult.innerHTML = "$" + profit.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); marginResult.innerHTML = margin.toFixed(2) + "%"; resultArea.style.display = "block"; }

What is Gross Profit?

Gross profit is the direct profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services. It is a fundamental metric used to evaluate a company's manufacturing and pricing efficiency.

The Gross Profit Formula

To calculate gross profit and its corresponding margin, we use the following two formulas:

  • Gross Profit = Total Revenue – Cost of Goods Sold (COGS)
  • Gross Profit Margin = (Gross Profit / Total Revenue) * 100

Understanding Cost of Goods Sold (COGS)

COGS includes all the direct costs involved in producing the goods sold by a company. This typically includes:

  • Raw materials and inventory
  • Direct labor costs for production workers
  • Manufacturing overhead and factory utilities
  • Shipping and freight-in costs

Note: COGS does not include indirect expenses such as office rent, marketing, or administrative salaries (these are operating expenses).

Example Calculation

Imagine a small bakery that sells artisanal bread. In one month, the bakery generates $10,000 in total sales (Revenue). The cost of flour, yeast, salt, and the wages for the baker totals $4,000 (COGS).

Step 1: Calculate Gross Profit
$10,000 (Revenue) – $4,000 (COGS) = $6,000 Gross Profit

Step 2: Calculate Gross Profit Margin
($6,000 / $10,000) * 100 = 60% Margin

Why Gross Profit Margin Matters

The gross profit margin is a critical health indicator for a business. A high margin suggests that the company is efficient at converting raw materials and labor into profit. If the margin is too low, it may indicate that the business is underpricing its products or that its production costs are too high. Comparing your margin against industry benchmarks helps determine if your business model is sustainable in the long run.

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