The Gross Profit Margin is a common but often overlooked calculation for business. 

The Gross Profit is calculated as follows:

Sales or Revenue less Cost of goods or services sold.

To get the Gross Profit Margin ratio:

(Sales or Revenue less Cost of goods or services sold) divided by Sales or Revenue.

1.     It determines how much profit a business is generating from its sales. 

2. It considers only the direct costs of the business, such as inventory (stock), productions costs; service costs, i.e., costs that are directly related to the delivery of the service or good.

3.     It determines what profit remains to cover the indirect / overhead / administration costs of the business. Also referred to as your Contribution Margin.

4.     Demonstrates how efficiently a business can produce and deliver its products or services;

5.     How much profit a business generates from its core activities.

If your gross profit is lower than expected you might consider:

1.     Increasing your sales price;

2.     Increasing your volume of sales;

3.     Looking for cheaper pricing on your goods or services;

4.     Reducing the amount of inventory / work in progress that you have on hand.

If you would like to discuss further please contact us:

McNamara & Company - Chartered Accountants, located minutes from the Melbourne CBD

www.mcnamaraandcompany.com.au/contact-us

Phone +61 3 9428 1062

Email admin@mcnamaraandco.com