The difference between the price at which a product or service is sold for and the cost of producing it is called the margin. Ideally, this amount would be positive and a big enough positive number to ensure you are covering your expenses in order to make a profit. A formula to calculate gross profit margin as a percentage is (gross profit divided by sales revenue) multiplied by 100.
For example…
If Jack’s barbershop made a gross profit of $50,000 and a sales revenue of $100,000, plugging into the formula for gross profit margin, you would get 50%. This is a great profit margin. Jack also runs a side-business selling hair care products. The gross profit of this line of business adds up to $10,000 and the sales revenue is $50,000, resulting in a profit margin of 20%. A not so big number, so perhaps Jack needs to reconsider the strategy for this line of business.
