Selling more does not always mean earning more. You also need to know what remains after costs. Gross and net profit margins help explain the difference, while the break-even point shows the sales needed to cover expenses. Here is how to calculate them for a Swiss business, with examples in CHF.
At a glance
- Gross profit in CHF equals sales minus the cost of goods sold or the defined production cost base.
- Net profit margin is net profit divided by revenue, expressed as a percentage.
- The break-even point uses the contribution margin, which is not always the same as gross profit margin.
- Compare margins using the same cost definitions, and always state the denominator of a percentage.
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What is the difference between gross and net profit margin?
Gross profit measures what remains after a defined category of costs associated with sales. A retailer generally deducts the purchase cost of goods sold. A manufacturer may use a wider production cost base: that definition should be stated.
Net profit takes account of all relevant expenses, including overheads, financing and, for a company, corporate income tax. A strong gross margin can therefore coexist with a weak net margin.
The income statement helps you monitor these different levels. Do not directly compare a service business with a retailer without examining which costs are included.
Calculating gross profit and gross profit margin
Gross profit = net revenue − cost of goods sold.
Take a retailer with CHF 100,000 in sales and CHF 60,000 in cost of goods sold. Gross profit is CHF 40,000.
As a percentage of sales, the gross margin is 40,000 / 100,000 × 100 = 40 %. The CHF 60,000 must relate to the goods actually sold during the period, not automatically to purchases paid for in that period: inventory levels may change.
Margin or markup?
These percentages are often confused. Gross profit margin divides gross profit by the selling price. Markup divides it by purchase cost. In French-language commercial terminology, these correspond to taux de marque and taux de marge respectively.
For a product bought for CHF 60 and sold for CHF 100 excluding VAT, gross profit is CHF 40. That is a 40% margin on sales and a 66.7% markup on cost. Both percentages are correct, but they answer different questions.
Calculating net profit margin
Net profit margin (%) = net profit / net revenue × 100.
If a business generates CHF 100,000 in sales and CHF 10,000 in net profit, its net margin is 10%. It retains CHF 10 in profit for every CHF 100 in sales, after the expenses included in the calculation.
That profit is not necessarily available in the bank. To understand why, explore the difference between profit and cash flow (in French).
Calculating break-even sales and when you reach them
To work out the revenue needed to cover fixed costs, separate fixed expenses from variable expenses.
Contribution = revenue − variable costs.
Break-even revenue = fixed costs / contribution margin ratio.
Suppose fixed costs are CHF 30,000 and variable costs represent 60% of sales. The contribution margin ratio is 40%. Break-even revenue is therefore 30,000 / 0.40 = CHF 75,000 in sales.
This assumes the costs classified as variable actually vary in the stated proportion. If some variable expenses are excluded from gross profit, using the gross margin directly would give the wrong break-even figure.
You can also estimate when the business reaches break-even. With CHF 100,000 in annual sales spread evenly over an illustrative 360-day year, the example reaches break-even after 75,000 / 100,000 × 360 = 270 days. Seasonal businesses need a calculation based on actual or forecast sales patterns.
Protect your margins before chasing volume
More sales do not automatically improve profit. Before changing prices or offering a discount, calculate its effect on margin and the extra volume needed to compensate. Tracking individual products or services can reveal differences hidden by business-wide totals.
Our accounting support helps you understand costs and results, giving you practical figures for adjusting prices, controlling expenses and focusing on profitable activities.
Frequently asked questions
Is there a universal “good” profit margin?
No. It depends on the industry, business model, costs included and level of risk.
Can a business have positive gross profit and still lose money?
Yes, if its remaining expenses exceed gross profit.
Does a 10% discount reduce profit by 10%?
Not necessarily. For a product selling at CHF 100 and costing CHF 60, a CHF 10 discount reduces gross profit from CHF 40 to CHF 30: a 25% fall before other expenses.
Sources and references
Romain Prieur is a Swiss-qualified accountant and founder of Entreprendre.ch. With more than ten years of experience in audit and business advisory in Switzerland, he advises entrepreneurs on company formation, accounting and taxation.
How can you improve margins?
Start by finding the cause: higher purchase prices, excessive discounts, lost inventory, unbilled rework or overheads that have become too high.
A higher percentage is not always better when volumes or risks differ substantially. Also consider profit in CHF, available capacity and the cash required.
A 10% discount can cut gross profit by 25%
A product sells for CHF 100 excluding VAT and costs CHF 60 to buy. Gross profit is CHF 40, equivalent to 40% of the selling price and 66.7% of purchase cost. After a CHF 10 discount, the price falls to CHF 90 but cost stays at CHF 60. Gross profit falls to CHF 30: a reduction of 10 ÷ 40 = 25 %. To regain the CHF 4,000 gross profit earned by selling 100 units at the original price, you would need to sell 4,000 ÷ 30 = 133.33 units, or 134 whole units, assuming unchanged unit costs and sufficient capacity.