Let's compare Gross Profit Margin to a basketball team's shooting efficiency. In basketball, a team's shooting efficiency is measured by the percentage of shots made compared to shots taken. It shows how effectively the team turns shooting opportunities into points.

In business, Gross Profit Margin is calculated as (Revenue - Cost of Goods Sold) / Revenue. This is like measuring how many points (revenue) a team scores after subtracting the shots they missed (cost of goods sold). The higher the percentage, the more efficient the team is at scoring from their attempts.

For example, if a team makes 50 points on 100 shots, their shooting efficiency is 50%. Similarly, if a company earns $1 million in sales but the cost to make those sales is $600,000, their Gross Profit Margin is 40% (($1M - $600,000) / $1M). This means for every dollar of product sold, the company keeps 40 cents as gross profit before other expenses are considered.

Just as a high shooting percentage in basketball indicates a team's effectiveness in scoring, a high Gross Profit Margin in business shows the company is effective at turning sales into profit.