Monthly Gross Profit Margin Formula
Learn how to calculate monthly gross profit, total direct costs, and gross profit margin from sales revenue.
Monthly gross profit margin shows the share of sales revenue left after costs directly tied to delivering goods or services are deducted. It is a useful way to track trading performance before operating expenses such as rent, administration, marketing, and interest.
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Monthly Gross Profit Margin
Where:
Add all direct costs, subtract them from monthly revenue to find gross profit, then divide gross profit by revenue and multiply by 100.
Variables Explained
| Variable | What It Means | Unit |
|---|---|---|
| monthlyRevenue - Monthly sales revenue | Total sales revenue earned in the month before deducting direct costs. | currency |
| directMaterials - Direct materials or purchases | Materials, inventory purchases, or other costs directly attributable to goods or services sold. | currency |
| directLabour - Direct labour costs | Wages and related costs for work directly involved in delivering sales. | currency |
| otherDirectCosts - Other direct costs | Other sales-linked costs, such as subcontractors, delivery, shipping, or sales commissions where appropriate. | currency |
| grossProfit - Monthly gross profit | Revenue remaining after total direct costs are deducted. | currency |
| grossProfitMargin - Gross profit margin | Gross profit expressed as a percentage of monthly sales revenue. | percent |
Step-by-Step Calculation
Record revenue for one month
Use revenue that relates to the same monthly period as the direct costs.
monthlyRevenue = monthly sales revenue
Add direct materials and purchases
Include costs directly connected with the products or services sold during the month.
directMaterials = direct materials or purchases
Add direct labour and other direct costs
Total direct costs are also commonly called cost of sales or cost of goods sold.
totalDirectCosts = directMaterials + directLabour + otherDirectCosts
Calculate monthly gross profit
This is the amount left from sales after direct costs, before operating expenses.
grossProfit = monthlyRevenue - totalDirectCosts
Calculate the gross profit margin
The percentage makes the result easier to compare across months with different revenue levels.
grossProfitMargin = (grossProfit / monthlyRevenue) * 100
Monthly gross profit margin calculation
Add total direct costs
$15,000 + $10,000 + $5,000
$30,000
Calculate gross profit
$50,000 - $30,000
$20,000
Divide gross profit by revenue
$20,000 / $50,000
0.40
Convert to a percentage
0.40 × 100
40.0%
Final Result
Monthly gross profit is $20,000 and the gross profit margin is 40.0%.
Assumptions
- ✓Revenue and all direct costs relate to the same monthly accounting period.
- ✓Only costs directly linked to goods or services sold are included as direct costs.
- ✓Operating expenses, financing costs, and taxes are excluded from gross profit.
- ✓Revenue and cost figures are recorded consistently from month to month.
Limitations
- !Inventory movements, returns, discounts, and revenue recognition timing can change reported gross profit.
- !The appropriate allocation of labour, delivery, commissions, and subcontractor costs can vary by business and accounting policy.
- !A gross margin result does not show whether the business made a net profit after overheads and other expenses.
- !One month can be affected by unusual sales, supplier price changes, or delayed invoices.
Common Mistakes to Avoid
Including rent, general office salaries, or broad marketing costs as direct costs without using a consistent method.
Comparing a full month of revenue with costs from a different period.
Using cash received rather than revenue earned when the figures are intended to be accrual-based.
Leaving out sales returns, discounts, delivery costs, or subcontractor costs that are directly linked to sales.
Reading gross profit as net profit without subtracting operating expenses, interest, and taxes.
Related Formulas
Frequently Asked Questions
What is the formula for monthly gross profit margin?
Monthly gross profit margin equals monthly gross profit divided by monthly revenue, multiplied by 100. Gross profit equals revenue minus total direct costs.
How do I calculate gross profit from revenue and direct costs?
Subtract direct materials, direct labour, and other direct costs from monthly sales revenue.
What is included in total direct costs?
It generally includes costs directly attributable to the goods or services sold, such as materials, purchases, production labour, subcontractors, and sales-linked delivery costs where applicable.
Can monthly gross profit margin be negative?
Yes. A negative margin means total direct costs were greater than sales revenue for that month.
Is gross profit margin the same as net profit margin?
No. Gross profit margin is calculated before operating expenses, interest, and taxes. Net profit margin includes additional expenses and may use a different measure of profit.
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