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Gross profit percentage is a financial metric that shows the proportion of money left over from revenues after accounting for the cost of goods sold.
Gross profit percentage is a financial metric that shows the proportion of money left over from revenues after accounting for the cost of goods sold (COGS). It is expressed as a percentage of sales and indicates the efficiency of a company in managing its production and labor costs relative to its sales.
For retailers, the gross profit percentage is calculated using the formula:
Gross Profit Percentage = (Gross Profit / Sales Revenue) x 100
Where:
- Gross Profit is the difference between sales revenue and the cost of goods sold.
- Sales Revenue is the income from sales before any deductions.
This metric is important for retailers because it provides insight into the profitability of their core operations. A higher gross profit percentage means that a retailer is retaining more money from each dollar of sales, which can be used to cover other operating expenses and contribute to net profit. It also helps in making pricing, purchasing, and promotional decisions, as well as in comparing performance against industry benchmarks.