Calculating your small business’ gross profit margin

Your gross profit margin lets you compare your proposed business to operating businesses in your industry. It’s an assessment of your company’s financial health found by calculating the proportion of profit you have left compared to your daily sales. Here’s how to find this important figure.

How to calculate your gross profit margin

To calculate your gross profit margin, you’ll need to know two other figures first.

One of the figures you’ll need is your cost of goods sold.

Cost of good sold, or COGS, is the price you paid to acquire the products that you’ll sell to your customers in retail/wholesale businesses, or the cost of the raw materials, labour and supplies in manufacturing businesses.

Most small businesses use the following formula to calculate their COGS expense:

Value of goods inventory at the beginning of the period
Value of any goods purchased for resale during the period

Value of goods inventory at the end of the period
The cost of goods sold during the period

Then, you’ll need to know your total estimated daily sales. Two methods of forecasting sales are the daily capacity method and the market share method.

Now that you have those figures, here’s how to calculate your business’ gross profit margin.


Total estimated daily sales

Cost of goods sold
Gross profit


Gross profit
Total estimated daily sales
Gross profit margin

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