What Is the Difference Between Gross Profit Margin (GPM) and Net Profit Margin (NPM)?
When calculating your ecommerce profits, it's important to distinguish between the two types.
Gross profit margin and net profit margin are two financial ratios that measure a company's profitability. They provide insights into the financial health and performance of a business, but they focus on different aspects of profitability.
Gross profit margin is a financial metric that indicates the percentage of revenue remaining after deducting the cost of goods sold (COGS). It measures the profitability of a company's core operations, excluding other expenses such as operating expenses, taxes, and interest.
Net profit margin, on the other hand, is a financial ratio that represents the percentage of revenue remaining as profit after deducting all expenses, including COGS, operating expenses, taxes, and interest. It provides a more comprehensive view of a company's overall profitability.
Key takeaways
- Gross profit margin focuses solely on the relationship between revenue and COGS, indicating the profitability of core operations.
- Net profit margin takes into account all expenses, providing a more comprehensive view of overall profitability.
- Both ratios are expressed as percentages and can be used to compare a company's profitability over time or against industry peers.
Calculation
Gross Profit Margin: (Gross Profit / Revenue) x 100
Net Profit Margin: (Net Profit / Revenue) x 100
