How to Calculate Gross Profit Margin and Gross Profit Margin Percent in Excel

Gross profit margin is a measure of how much profit a business makes from its sales, after deducting the cost of goods sold (COGS). Gross profit margin percent is the ratio of gross profit margin to sales, expressed as a percentage. These metrics are useful for evaluating the profitability and efficiency of a business, as well as comparing it with other businesses in the same industry.

In this article, we will show you how to calculate gross profit margin and gross profit margin percent in excel, using some basic formulas and functions. We will also provide a scenario with real data to illustrate the steps and the results.

The Basic

The formulas for gross profit margin and gross profit margin percent are as follows:

• Gross profit margin = Sales – COGS
• Gross profit margin percent = (Gross profit margin / Sales) x 100%

In excel, we can use the following functions to perform these calculations:

• SUM(range) to add up the values in a range of cells
• MINUS(left, right) to subtract the value in the right cell from the value in the left cell
• DIVIDE(numerator, denominator) to divide the value in the numerator cell by the value in the denominator cell
• MULTIPLY(factor1, factor2) to multiply the value in the factor1 cell by the value in the factor2 cell
• PERCENT(value) to format the value as a percentage with two decimal places

Procedures

To calculate gross profit margin and gross profit margin percent in excel, we need to follow these steps:

1. Enter the data for sales and COGS in two columns, with labels in the first row. For example, we can use column A for sales and column B for COGS, with “Sales” and “COGS” in cells A1 and B1, respectively.
2. In the third column, enter the formula for gross profit margin, using the MINUS function. For example, in cell C2, we can enter =MINUS(A2, B2) to calculate the gross profit margin for the first row of data. Then, drag the formula down to fill the rest of the column, or use the Fill Down command from the Home tab.
3. In the fourth column, enter the formula for gross profit margin percent, using the DIVIDE, MULTIPLY, and PERCENT functions. For example, in cell D2, we can enter =PERCENT(MULTIPLY(DIVIDE(C2, A2), 100)) to calculate the gross profit margin percent for the first row of data. Then, drag the formula down to fill the rest of the column, or use the Fill Down command from the Home tab.
4. Optionally, we can add some formatting to the table, such as borders, colors, alignment, and number formats, to make it more readable and professional.

Scenario

To demonstrate the calculation of gross profit margin and gross profit margin percent in excel, let us consider a scenario where we have the sales and COGS data for a hypothetical company that sells three products: A, B, and C. The data is shown in the table below:

Using the steps described above, we can calculate the gross profit margin and gross profit margin percent for each product, as well as the total for the company. The results are shown in the table below:

As we can see, the company has a consistent gross profit margin percent of 40% for all its products, as well as for the total sales. This means that the company earns 40 cents of profit for every dollar of sales, after deducting the COGS. This is a relatively high gross profit margin percent, indicating that the company has a strong competitive advantage and a low cost structure.

Other Approaches

There are other ways to calculate gross profit margin and gross profit margin percent in excel, besides using the formulas and functions we have shown. For example, we can use the following alternatives:

• Instead of using the MINUS function, we can use the - operator to subtract the COGS from the sales. For example, in cell C2, we can enter =A2-B2 instead of =MINUS(A2, B2).
• Instead of using the DIVIDE, MULTIPLY, and PERCENT functions, we can use the / operator and the % symbol to divide the gross profit margin by the sales and format it as a percentage. For example, in cell D2, we can enter =C2/A2% instead of =PERCENT(MULTIPLY(DIVIDE(C2, A2), 100)).
• Instead of entering the formulas in each cell, we can use the SUM function and the SUMPRODUCT function to calculate the total gross profit margin and gross profit margin percent for the company. For example, in cell C6, we can enter =SUM(C2:C4) instead of =MINUS(A6, B6), and in cell D6, we can enter =SUMPRODUCT(C2:C4, D2:D4)/SUM(C2:C4) instead of =PERCENT(MULTIPLY(DIVIDE(C6, A6), 100)).

These alternative approaches can produce the same results as the original formulas, but they may be simpler or more convenient for some users. However, they may also have some drawbacks, such as being less clear or less flexible. Therefore, users should choose the approach that suits their needs and preferences best.