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How to Calculate Profit Margin
Blaine Bertsch - Founder, Dryrun.com
Gross Profit Margin vs.
Net Profit Margin
Inordertocalculateyourprofitmargin,firstyou’ll
needtofirstundertstandthedifferencebetween
grossprofitandnetprofit.
Two types of profit margin:
Gross Profit Margin & Net Profit Margin
Gross Profit
Grossprofitcalculatesthetotalincomefromyour
goodsorservicesminusthecostofthosegoodsor
services(sometimesreferredtoasCOGS).
Revenue from goods/services - Cost of Goods/Services = Gross profit
Theonlyexpensesincludedaredirectly relatedto
thecreationofthosespecificgoodsandservices.
Not included in calculation
Other expenses, such as:
•payroll
•rent&utilities
•taxes
•otherbusinessexpenses
Expenses Included in
Gross Profit
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
Take my FREE MINI-COURSE for more detail on calculating profit margins and
discover how to put the knowledge to use in your business!
Get Started in minutes! >>
Net Profit
Netprofitalso includesallbusinessexpenses,not
justthedirectcostofgoodsorservices.
Revenuefromgoods/services-CostofGoods/Services
-OtherBusinessExpenses=Net profit
Expenses Included
in Net Profit
ALLbusinessincomeandexpensesareincludedin
thenetprofitcalculation.
Included in calculation
Other income & expenses, such as:
•investmentincome
•rent,utilities&payrollexpenses
•allotherbusinessexpenses
*Byincludingallbusinessesexpensesinanetprofitcalculationa
moredetailedpictureemergesofthebusinesshealth.
See Your Profit & Loss Statement
(P&L,alsocommonlycalledan‘IncomeStatement)
Bottom LineoftheP&L: Net Profit*
Gather the Numbers
Revenue from goods/services - Cost of Goods/Services - Other Business Expenses = Net profit
Calculating Profit Margin
1. Gross Profit Margin
Grossprofitmarginisapercentageofincome
retainedasprofitafteraccountingforthedirect
costofthegoodsorservices
Gross Profit / Total Revenue x 100 = Gross Profit Margin
RevenuefromthetoplineofyourP&Lis$10,000
CostofgoodsorservicesfromyourP&Lis$8,000
Yourgrossprofitis$10,000-$8,000=$2,000
Example: Gross Profit
Margin Calculation
Gross profit margin is $2,000 / $10,000 x 100 = 20%
Net Profit / Total Revenue x 100 = Net Profit Margin
2. Net Profit Margin
Netprofitmarginisapercentageofincome
retainedasprofitafteraccountingforall
businessexpenses
RevenuefromthetoplineofyourP&Lis$10,000
CostofgoodsorservicesfromyourP&Lis$8,000
allotherexpensesareanadditional$1,000
YourNetprofitis$10,000-$8,000-$1,000=$1,000
Example: Net Profit
Margin Calculation
Net profit margin is $1,000 / $10,000 x 100 = 10%
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
Sign up for a 30 day free trialofDryrunandgaininsightinto
yourbusinesswithasimplewaytopicturerevenue,profitand
cash flowscenarios.
Blaine Bertsch
Founder Dryrun.com
Take my FREE MINI-COURSE for more detail on calculating profit margins and
discover how to put the knowledge to use in your business!
Get Started in minutes! >>

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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
  • 3. Gross Profit Grossprofitcalculatesthetotalincomefromyour goodsorservicesminusthecostofthosegoodsor services(sometimesreferredtoasCOGS). Revenue from goods/services - Cost of Goods/Services = Gross profit
  • 4. Theonlyexpensesincludedaredirectly relatedto thecreationofthosespecificgoodsandservices. Not included in calculation Other expenses, such as: •payroll •rent&utilities •taxes •otherbusinessexpenses Expenses Included in Gross Profit
  • 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 Take my FREE MINI-COURSE for more detail on calculating profit margins and discover how to put the knowledge to use in your business! Get Started in minutes! >>
  • 6. Net Profit Netprofitalso includesallbusinessexpenses,not justthedirectcostofgoodsorservices. Revenuefromgoods/services-CostofGoods/Services -OtherBusinessExpenses=Net profit
  • 7. Expenses Included in Net Profit ALLbusinessincomeandexpensesareincludedin thenetprofitcalculation. Included in calculation Other income & expenses, such as: •investmentincome •rent,utilities&payrollexpenses •allotherbusinessexpenses
  • 8. *Byincludingallbusinessesexpensesinanetprofitcalculationa moredetailedpictureemergesofthebusinesshealth. See Your Profit & Loss Statement (P&L,alsocommonlycalledan‘IncomeStatement) Bottom LineoftheP&L: Net Profit* Gather the Numbers Revenue from goods/services - Cost of Goods/Services - Other Business Expenses = Net profit
  • 9. Calculating Profit Margin
  • 10. 1. Gross Profit Margin Grossprofitmarginisapercentageofincome retainedasprofitafteraccountingforthedirect costofthegoodsorservices Gross Profit / Total Revenue x 100 = Gross Profit Margin
  • 11. RevenuefromthetoplineofyourP&Lis$10,000 CostofgoodsorservicesfromyourP&Lis$8,000 Yourgrossprofitis$10,000-$8,000=$2,000 Example: Gross Profit Margin Calculation Gross profit margin is $2,000 / $10,000 x 100 = 20%
  • 12. Net Profit / Total Revenue x 100 = Net Profit Margin 2. Net Profit Margin Netprofitmarginisapercentageofincome retainedasprofitafteraccountingforall businessexpenses
  • 13. RevenuefromthetoplineofyourP&Lis$10,000 CostofgoodsorservicesfromyourP&Lis$8,000 allotherexpensesareanadditional$1,000 YourNetprofitis$10,000-$8,000-$1,000=$1,000 Example: Net Profit Margin Calculation Net profit margin is $1,000 / $10,000 x 100 = 10%
  • 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 Take my FREE MINI-COURSE for more detail on calculating profit margins and discover how to put the knowledge to use in your business! Get Started in minutes! >>
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