1. What is Gross Profit Percentage?

Gross Profit Percentage (GP%) is a financial metric that shows what percentage of revenue exceeds the cost of goods sold. It's a key indicator of a company's financial health and pricing strategy.

2. How Does the Calculator Work?

The calculator uses the Gross Profit Percentage formula:

Where:

• \( Revenue \) — Total sales income
• \( COGS \) — Cost of Goods Sold (direct costs of producing goods)

Explanation: The formula calculates what proportion of revenue remains after accounting for direct production costs.

3. Importance of GP Calculation

Details: GP% helps businesses assess pricing strategies, production efficiency, and overall profitability. It's crucial for financial analysis and decision-making.

4. Using the Calculator

Tips: Enter revenue and COGS in GBP (£). Both values must be positive numbers, with revenue greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What's a good Gross Profit Percentage?
A: This varies by industry, but generally 50-70% is excellent, 30-50% is average, and below 30% may indicate pricing or cost issues.

Q2: How is this different from net profit?
A: Gross profit only subtracts COGS, while net profit includes all expenses (overheads, taxes, etc.).

Q3: Should I use this for service businesses?
A: For service businesses, use "Cost of Services" instead of COGS in the calculation.

Q4: How often should I calculate GP%?
A: Regular calculation (monthly/quarterly) helps track business performance and spot trends.

Q5: What if my GP% is negative?
A: A negative GP% means COGS exceeds revenue - immediate action is needed to review pricing or reduce costs.