How to Use Gross Profit Margin to Drive Better Pricing Decisions
By: Meliza Angelica S. Estinopo, CPA MBA

As an accountant working with various small to medium-sized businesses, I’ve seen a recurring challenge—pricing decisions made on gut feel rather than grounded financial insight. Many business owners focus on sales and volume but overlook one of the most powerful indicators sitting right in their books: Gross Profit Margin (GPM).

Let’s dive into why this metric matters and how you can use it to confidently price your products or services for profitability.

What is Gross Profit Margin?

Gross Profit Margin is the percentage of revenue that remains after deducting the direct costs of producing or delivering your product or service.

📌 Formula:
GPM = (Sales - Cost of Goods Sold) / Sales x 100

If your business earns ₱1,000,000 in sales and your cost to deliver these products or services is ₱600,000, your Gross Profit is ₱400,000. That means your GPM is 40%.

This number tells you how efficiently your business is creating value. The higher the margin, the better your ability to cover operating expenses, invest in growth, and stay resilient during slow months.

Why Gross Profit Margin Should Be Your Pricing Compass

Here’s what I often advise my clients: never set your price without looking at your margins. You might be covering costs, but if your GPM is too low, you’re working hard with little to show for it. Here’s how this metric can help you make better pricing decisions:

1. It Identifies Your Breakeven Threshold

When you know your GPM, you can calculate how much you need to sell just to cover your fixed costs (like rent, salaries, and utilities). This is vital in pricing. If you price too low and your GPM suffers, you need to sell a lot more just to break even.

🧠 Real Talk: I’ve seen business owners with high sales but low margins still operating at a loss. They thought “more sales = more income,” but poor pricing wiped out their profits.

2. It Shows When You’re Underpricing

If your GPM is consistently lower than industry benchmarks, it’s a red flag. You may be pricing too low just to compete. That might attract customers, but it’s not sustainable. Your books might be trying to tell you, “You’re selling yourself short.”

👩‍🏫 In one client case, we raised prices slightly and improved packaging value. Result? Their GPM increased from 28% to 41%, and clients didn’t mind paying more because the offer became more compelling.

3. It Helps You Test Price Scenarios

GPM allows you to play “what if” games.
What if I increase prices by 10%?
What if I reduce supplier costs by 5%?

You can simulate new pricing strategies without guessing. If you have a bookkeeper or accountant working with you (like our team), we can show you exactly how those changes impact your business in pesos and percentage.

4. It Keeps Your Strategy Grounded in Reality

Your GPM varies across product lines, services, or customer segments. Reviewing it regularly can guide you to focus on high-margin offers and reconsider or restructure the low-margin ones.

5. It Supports Your Business Growth Planning

Before launching a promo, expanding to a new location, or investing in marketing—check your GPM. It will tell you if you’re financially equipped to handle growth or if you need to fine-tune your pricing first.

Final Thoughts

Gross Profit Margin is not just an accounting number—it’s your business performance scorecard. When you start using it as a decision-making tool, you stop guessing and start growing with confidence.

If you haven’t checked your margins recently, now is the perfect time. And if you’re unsure where to start, we’re here to help you read your numbers, understand what they’re saying, and translate that into action.

Let your books be your business’s compass—not just during tax season, but all year round.

Tip: Start tracking your GPM monthly. You’ll begin spotting patterns, pricing opportunities, and areas for improvement.

Would you like a quick GPM health check for your business? Let’s talk.
— Estinopo Accounting Firm