How do I Figure Out Gross Profit Percentage?

GPP calculates a company's profit.

Gross Profit Percentage, or GPP, is the ratio between revenue and costs. Calculating this percentage shows a company's profit and can be a useful tool for determining the health of a business and how to improve earnings.

Calculating

GPP is the total revenue minus the total costs, divided by the total revenue. If a company has earned $1,000 and spent $600 on overhead, labor, and materials, the gross profit would be $400. Dividing $400 by the $1,000 total revenue results in a GPP of 40 percent.

Function

Comparing a company's GPP at regular time intervals can help determine how well the company is performing over time. By noticing trends in their results, companies can more accurately decide what adjustments should be made to boost profit and better understand their costs.

Application

GPP can also show how a company's profit fares against the industry average. This is especially useful for new companies that do not yet have their own profit trends.

References

• Determining Operating Performance: GPP