Define gross profit margin and how it's calculated for a salon.

• A. Gross profit margin = Net income / Revenue.
• B. Gross profit margin = Revenue / COGS.
• C. Gross profit margin = (Revenue - COGS) / Revenue; for salons, COGS includes products used and direct service costs.
• D. Gross profit margin = Total expenses / Revenue.

Answer: (C)

Gross profit margin shows what portion of revenue remains after paying the direct costs tied to delivering services and selling products. It’s calculated as gross profit divided by revenue, where gross profit is revenue minus the cost of goods sold. In a salon, revenue comes from both services and product sales, and COGS includes the products used for those services plus the direct costs of delivering the service (such as the portion of labor tied to performing the service). So the formula is (Revenue − COGS) / Revenue, which yields the margin on dollars earned after covering the direct, value-creating costs of providing the service and selling products. This is why the described option is the best fit. The other ways of framing it (like revenue divided by COGS, or expenses divided by revenue, or net income-based measures) don’t isolate the direct-cost palindrome that defines gross profit margin.