Gross Profit Margin (Gross Profit Margin) is the percentage of Gross Profit to Sales Revenue (or Operating Income), where Gross Profit is the difference between Revenue and Operating Costs corresponding to Revenue.

Expressed in the formula: Gross Profit Margin = Gross Profit / Operating Income x 100% = (Revenue from Main Business - Cost of Main Business) / Revenue from Main Business x 100%.

From the composition of the gross profit margin is the difference between revenue and operating costs, but in fact this understanding of the concept of gross profit margin put the cart before the horse, in fact, the gross profit margin reflects a commodity after the production of the internal system of conversion of value-added after that part. That is to say, the more value-added gross profit is naturally more. For example, the product through research and development of differentiated design, compared with competitors to increase some of the features, and the increase in marginal price is positive, then the gross profit will increase.

The size of the gross profit margin usually depends on the following factors:

1, market competition

If there is no such product on the market, or very few such products, or such products compared to similar products on the market, its quality, functional value to have an advantage, then the price of the product is naturally the use of high-priced strategy, and conversely, if it is the operation of a major road product or sunset industry, the market is more saturated, then it can only be a high price strategy, and if it is operating the road product or sunset industry. The market is more saturated, then it can only be achieved with the flow of the sales price, to obtain an average gross profit on sales.

2, R & D costs

A feature of the modern economy is the rapid renewal of products, such as faster and better development of new products with emerging functions, and products in the function, the use of value and price advantages, who will be able to occupy the highest point of the market, the amount of R & D investment in the enterprise, usually more inventions and creations made by the achievements of the patent protection of the interests of more! The emerging products have great advantages in cost and efficacy, and their gross profit is also large.

3, fixed costs

Mainly refers to the input of fixed assets, such as machinery and equipment, plant, factory rent investment, these constitute fixed manufacturing costs, from a certain point of view, but also reflects the enterprise's entry threshold is high or low, the enterprise in order to recover this huge investment costs, but also to improve the gross profit of its products, on the contrary, if the enterprise invested in machinery and equipment is not much, or most of them to take the form of OEM Assembly processing, or commissioned processing, its sales profits to let a part of the collaborative manufacturers, the gross profit of its products may only be averaged;

4, the cost of technology

such as the production of enterprises with independent intellectual property rights of patented products, especially patents of inventions and patents and technology, and the patented products, regardless of the quality of the product, the product function than the original similar products on the market have advantages, have a cost advantage, have a competitive advantage. With the cost advantage, with competitive exclusivity, natural price increases, the gross profit of the product is usually higher;

5, technology

Technology

Technical requirements for people, the size of the labor cost, the complexity of the product production process, high technological content, the use of technicians with high grade level, the gross profit of the product will be naturally high, and the opposite for the process is simple, there is nothing Technical content, most of the implementation of the general labor operation of the road products, of course, can not have a high gross profit.

Baidu Encyclopedia - Gross Profit Margin