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How Do I Calculate My Gross Profit?

Gross Profit Calculation

"How do I calculate my gross profit"
is a question we have been asked by many clients over the years and...... it isn't always the new business owners that ask.

Gross profit measures your profitability before expenses/overheads and relates directly to your sales/turnover

As an example:

Sales/Turnover or Takings     £1,000

Less Direct Cost of Sales:
eg purchases, materials etc      £700          

Gross Profit                              £300  (Gross Profit = Sales less Direct Costs)
Gross Margin %                           30% (Gross Profit % = Gross Profit divided by Turnover)

Gross margin % measures profitability  
Higher values indicate a higher return on sales.  This is the difference between the price of your product and what it cost you to buy or make it. Therefore the only way to increase your gross margin is to sell at a higher price or buy at a lower price.

Don't forget about your overheads/expenses
Remember the Gross Profit is calculated before general expenses/overheads are deducted so you must allow for rent, rates, wages etc.

Simple Profit and Loss Statement Example

Sales/Turnover or Takings      £100,000

Less Direct Cost of Sales
eg purchases, materials etc      £70,000         

Gross Profit                              £30,000  


  • Rent                                     5,000
  • Rates                                     1,500 
  • Wages                                10,000
  • Insurances                            1,000
  • Advertising etc                         500

Total Expenses                             £18,000 

Net Profit                                    £12,000

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The content of this article is provided for information only. While all reasonable care has been taken to ensure that the information in this article is accurate, no liability is accepted by Bright Chilli Limited for any loss or damage caused to any person or business relying on any statement or omission in the content of this article.