This document discusses how to calculate gross profit margin and net profit margin. Gross profit margin is calculated as gross profit divided by total revenue. Gross profit is revenue minus the cost of goods or services sold. Net profit margin is calculated as net profit divided by total revenue. Net profit is gross profit minus all other business expenses. Understanding how to calculate profit margins provides insight into the health and performance of a business.
Value Proposition canvas- Customer needs and pains
How to Calculate Profit Margin
1. How to Calculate Profit Margin
Blaine Bertsch - Founder, Dryrun.com
2. Gross Profit Margin vs.
Net Profit Margin
Inordertocalculateyourprofitmargin,firstyou’ll
needtofirstundertstandthedifferencebetween
grossprofitandnetprofit.
Two types of profit margin:
Gross Profit Margin & Net Profit Margin
5. See Your Profit & Loss Statement
(P&L,alsocommonlycalledan‘IncomeStatement)
Top lineofyourP&L: Revenue
Cost of goods sold(COGS)onP&L:Expenses*
*expensesforthosegoodsorservicesonly
Gather the Numbers
Revenue from goods/services - Cost of Goods/Services - Other Business Expenses = Net profit
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7. Expenses Included
in Net Profit
ALLbusinessincomeandexpensesareincludedin
thenetprofitcalculation.
Included in calculation
Other income & expenses, such as:
•investmentincome
•rent,utilities&payrollexpenses
•allotherbusinessexpenses
12. Net Profit / Total Revenue x 100 = Net Profit Margin
2. Net Profit Margin
Netprofitmarginisapercentageofincome
retainedasprofitafteraccountingforall
businessexpenses
14. It’s important to understand how
to calculate profit margin to have
a thorough understanding of the
health of your business.
Bothgrossprofitmarginandnetprofitmarginaretwocommon
keyperformanceindicators(KPIs)thatbusinessescloselymonitor.
The Value of Knowing
Your Profit Margin
15. Sign up for a 30 day free trialofDryrunandgaininsightinto
yourbusinesswithasimplewaytopicturerevenue,profitand
cash flowscenarios.
Blaine Bertsch
Founder Dryrun.com
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