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Creating a Gross Profit Margin Calculator |
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Before we look at how to calculate gross profit margin, let's establish what gross and net profit are. Gross ProfitGross Profit is the difference between what an item sells for, and what it costs you. So, if you pay £1 for an item, and you sell it for £3, the gross profit is £2. Net ProfitNet Profit is the difference between what an item sells for (£3 in our example above), and what it costs to sell it: Step 1: Add costs like rent, power, wages, advertising, delivery, and loan interest. These are your operating costs. Step 2: Divide this figure by the number of items that you have (to sell). For example, £800 divided by 1700 (items) is 47 pence. Step 3: Add this figure to the cost of the item (£1 + 47p = £1.47), giving you a net profit of £1.53 pence per item (£3 - £1.47). Note that net profit is always smaller than gross profit. Gross Profit MarginThe gross profit margin, expressed as a percentage, is what remains from sales after a company pays out the cost of goods sold. To obtain gross profit margin, divide gross profit by sales. So, continuing with our example above, if you receive £3 for the sale of an item, and it cost you £1 to buy, the gross profit margin would be: Step 1: £3 - £1 = £2 (this is the gross profit) Step 2: (£2 / £3) x 100% = 66.66% (this is the gross profit margin) Basically, 66.66% gross profit margin means that for every £1 generated in sales, the company has 66.66 pence left over to cover operating costs (see above) and profit. Use the free open source gross profit margin calculator Download the PHP source files for the free open source gross profit margin calculator Go back to PHP Tutorials home page Go back to Tutorials home page
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