Gross Profit and Expense Percentage

Two statistics you can use to help track and improve the profitability of your business are Gross Profit percentage and expenses as a percentage of sales.

Gross Profit Percentage

To determine gross profit percentage, often-abbreviated GP%, by item or on total sales, you divide the Gross Profit by sales. Here are two examples.

An item sells for 1.00 and it costs .60, so the Gross Profit is .40. .40 divided by 1.00 is 40%, so the Gross Profit percentage is 40%.

Total sales are 10,000 and the total COGS is 7,450. This makes the Gross Profit 2,550. 2,550 divide by 10,000 equals 25.5%, so the Gross Profit percentage is 25.5%.

Expenses as a Percentage of Sales

To determine the expenses as a percentage of sales, simply divide expenses by sales. For example, if expenses are 2,500 and sales are 10,000, then expenses, as a percentage of sales is 25%.

How to use GP% and Expense%

So now that you have these great numbers, what do they mean? Basically the difference between GP% and expense% is equal to profit. To put it a different way, using the example above of 25.5% GP and 25% expenses, you make .5% on every dollar you sell. .5% is the difference between GP% and expense%. So, if you sell 10,000, your profit will be 50.

The sad fact of the matter is that many businesses not only aren’t aware of these calculations, they don’t know if they are actually making any money or not. If you don’t track these items, you have no way to understand where you need to improve to make more profit.

You should realize that in most businesses, .5%, or half a percent, is not a very big margin. Look at the same example if your GP% was 29% and your expense% was 25%. You would now be making 4% on sales, or $400 on $10,000 in sales.

Start tracking these percentages today and you will quickly be able to see where your business is at, and where you can make it be in the future.

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