Gross Profit Margin
2 July 2021
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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