Gross Profit Margin puts the direct costs of producing products or services (also referred to as costs of goods sold) in relation to sales revenue to establish how efficient a company is in producing its goods or services.
For example, a gross profit margin of 20% indicates that for each dollar in sales, the company spent eighty cents in direct costs to produce the good or service that the firm sold.
Gross Profit Margin = ((Revenue - Cost of Goods Sold) / Revenues) x 100
This indicator is included in the book: Key Performance Indicators - the 75+ measures every manager needs to know, which contains an in-depth description of this KPI, as well as practical advice on data collection, calculations, target setting, and actual usage.
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