A margin is a percentage calculated on the basis of total sales and production, and can be used to evaluate various aspects of business profitability. You can find out how to calculate the gross profit margin for your business using the method below.
Steps
Method 1 of 3: First Part: Revenue and Expense Data
Step 1. Collect business activity data for a certain period
This period could be a year, a month or a quarter, but all data should be for the same period to get accurate data.
Step 2. Calculate the total revenue for the time period in question
You can get it by adding the invoices of all the sales made in the period.
Step 3. Calculate the cost of all goods sold
This could include manufacturing costs, if you build the data in-house. It could be the purchase price of the products sold, if you buy them from a supplier.
- Do not take into account taxes, interest or general business expenses. They are not taken into account in the gross profit margin, but you will take them into account later to calculate the net income from overall management.
- If you want to calculate the profitability of multiple products separately, you can separate the total sales and the total costs of goods sold for each product and find the gross profit margins for each of them.
Method 2 of 3: Part Two: Gross Profit Margin
Step 1. Subtract the total costs related to the goods sold from the total revenue generated from the sale of those products
For example, if you made $ 200 by selling 100 cans of soda, which you bought for $ 100, the gross profit would be $ 100
Step 2. Divide the gross profit by the cost of the products sold
Multiply the number by 100 to get a percentage value, rather than a decimal.
For example, you divide $ 100 by $ 100, from which you get 1. If you multiply 1 by 100, you get a gross profit margin of 100%
Method 3 of 3: Part Three: Margin per Single Unit of Profit
Step 1. Calculate the potential profitability of products, using unit sales prices and unit costs
Step 2. Take the cost of a single can of soda
Subtract it from the selling price of a single can.
Step 3. For example, subtract $ 1, the cost of a can of soda, from the retail price of $ 2
Gross profit is € 1.
Step 4. Divide the gross profit per unit by the cost of that single unit
Multiply the result by 100 to get the percentage value.
