Gross Margin Percentage (GM %)
The gross profit margin expresses your profits as a percentage of the total sales revenues generated.
Gross margin percentage is the difference between revenue and cost of goods sold, or COGS, divided by revenue, expressed as a percentage. Generally, it is calculated as the selling price of an item, less the cost of goods sold (production or acquisition costs, essentially). Gross Margin is often used interchangeably with Gross Profit, but the terms are different. When speaking about a dollar amount, it is technically correct to use the term Gross Profit; when referring to a percentage or ratio, it is correct to use Gross Margin. In other words, Gross Margin is a % value, while Gross Profit is a $ value.
GM % = Profit / Revenue
GM % = (Revenue – COGS) / Revenue
$20k manufacturing supplies
$80k labor costs
gross profit will be $100k
gross margin percentage will be 50%