The formula for gross profit margin is as follows

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We have made a distinction between net profit and gross profit. So even the margin, which is calculated on the basis of profit, can be net or gross.

It allows us to calculate profits by correlating them to production, that is, excluding all the expenses that the entrepreneur must face to produce a good, that is, our variable costs.


Where, R is the revenue, the gross profit, as we saw before, is obtained by subtracting the variable costs from the revenue, and this explains why the MPL gives us the percentage of profit related to production.

Multiplying this value by 100 we obtain the percentage.

Let's take a practical example.

Your company, in a given period, produced revenues of €1200. The netherlands email list production of these goods cost you €650.

Let's immediately calculate the gross profit by applying the formulas seen earlier (PL = R - CV) so the gross profit PL = €550 (1200 - 650 = €550).

What is the gross profit margin then? (MPL = PL/R x 100)

550/1200 x 100= 46%

Your company, during this period, had a gross margin of 46%.

Net profit margin or profit margin
The net profit margin, on the other hand, indicates the percentage of overall profit excluding all expenses, which we previously defined as total costs (PN = R - CT)


Your company's net profit margin in a given period is 33%. This value represents its overall profitability and as you can see the PN is lower than the PL because total costs are considered.

But why is the profit margin so important?
We've said it over and over again, but in the end, why is margin calculation so important? Well, there are several reasons.

It helps you grow. Knowing this percentage helps you keep track of the health of your business. It gives you an account of the expenses that you can consequently reduce or increase depending on the case.