Margin is a percentage that is calculated based on sales and production figures to assess several aspects of business profitability. You can learn how to calculate the gross profit margin of your business using the following method.
Step
Part 1 of 3: Calculating Total Revenue and Expense
Step 1. Collect data from the company's operational activities during a certain period
This period can be a year, a month, or a quarter, but all data must be collected over the same period in order to get an accurate number.
Step 2. Calculate the total revenue for a given period
This figure is your receipt of all sales during a certain period.
Step 3. Calculate the cost of goods sold
If your company carries out the process of producing merchandise yourself, this figure must take into account production costs. If you buy an item from a vendor for resale, this figure should take into account the purchase price of the item.
- Do not include taxes, interest charges, and operating expenses. These figures should not be used in calculating the gross profit margin, but are required when calculating the total profit generated by the company.
- To find the profitability of multiple products, you must separate the revenue and cost of goods sold for each product and then calculate the gross profit margin by product.
Part 2 of 3: Calculating Gross Profit Margin
Step 1. Subtract the cost of goods sold from the total revenue generated by the merchandise
For example, if you earn Rp. 200,000 from the sale of 10 cans of soda and the cost of goods sold is Rp. 100,000, then your gross profit is Rp. 100,000
Step 2. Divide gross profit by cost of goods sold
Multiply the result by 100 to get the number as a percentage instead of a decimal.
For example, divide $100 by $100 and the result is 1. If you multiply by 100, you'll get a 100% gross profit percentage
Part 3 of 3: Calculating Profit Margin per Unit
Step 1. Calculate the profit that will be generated from each product using the selling price per unit and cost of goods sold per unit
Step 2. Calculate the cost of goods sold for each can of soda
Subtract this number from the selling price per can of soda.
Step 3. For example, subtract the cost of goods sold per can of soda by IDR 10,000 from the selling price of IDR 20,000
Your gross profit is IDR 10,000.
Step 4. Divide the gross profit per unit by the cost of goods sold per unit
Multiply by 100 to get the number in percentage.
