How is gross profit margin calculated?
The formula is simple: Gross Profit Margin = ((Revenue − COGS) / Revenue) × 100. COGS covers the direct costs of producing or sourcing what you sell — raw materials, production labour, supplier invoices, and shipping or packaging directly attributable to the product. Operating costs such as marketing, rent and management salaries are excluded; those belong in net profit margin.
Gross margin is the most direct read on your pricing power and sourcing efficiency. When it falls, either your selling price is under pressure or unit costs are rising. Track margin per product or category to separate the two — a blended figure hides the mix of profitable and unprofitable SKUs.
Industry reference ranges
There is no universal target; it varies with the business model. As rough guidance: e-commerce and retail typically land in the 20-50% band, services and agencies around 40-60%, and SaaS or digital products in the 70-90% range. Treat these as orientation rather than hard claims — your own period-over-period trend is a more meaningful benchmark than any industry average.