Profit percentages, or gross margin percentages, describe a sale's profit in terms of the product's selling price. This method distinguishes profit percentages from price markup, a related value, which describes profit in terms of the product's cost to the seller. For example, a product with a 100-percent markup produces only a 50-percent profit. The two metrics guide companies in determining the benefits from incremental sales and in pricing products to meet profit goals.
1. Subtract the inventory's sales revenue from its cost. For example, if a company buys a quantity of inventory for $6,000 and sells it for $8,000, subtract $6,000 from $8,000. This gives $2,000, the profit from the sale.
2. Divide the sale's profit by the gross revenue. Dividing $2,000 by $8,000 gives 0.25, the gross profit ratio.
3. Multiply this ratio by 100 to convert it to a percentage. 0.25 multiplied by 100 gives 25, so this sale offers a 25 percent profit.
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