How Do I Calculate My Gross Profit?
Gross Profit Calculation
"How do I calculate my gross profit"
is a question we have been asked by many clients over the years and...... it isn't always the new business owners that ask.
Gross profit measures your profitability before expenses/overheads and relates directly to your sales/turnover
As an example:
Sales/Turnover or Takings £1,000
Less Direct Cost of Sales:
eg purchases, materials etc £700
Gross Profit £300 (Gross Profit = Sales less Direct Costs)
Gross Margin % 30% (Gross Profit % = Gross Profit divided by Turnover)
Gross margin % measures profitability
Higher values indicate a higher return on sales. This is the difference between the price of your product and what it cost you to buy or make it. Therefore the only way to increase your gross margin is to sell at a higher price or buy at a lower price.
Don't forget about your overheads/expenses
Remember the Gross Profit is calculated before general expenses/overheads are deducted so you must allow for rent, rates, wages etc.
Simple Profit and Loss Statement Example
Sales/Turnover or Takings £100,000
Less Direct Cost of Sales
eg purchases, materials etc £70,000
Gross Profit £30,000
Overheads/Expenses:
Rent 5,000
Rates 1,500
Wages 10,000
Insurances 1,000
Advertising etc 500
Total Expenses £18,000
Net Profit £12,000
Looking After Your Business Finances
Find out more about our book-keeping and management account services.
To find out how we can help you and your business contact Gillian on 0844 736 5611 or email gillian@brightchilli.com
The content of this article is provided for information only. While all reasonable care has been taken to ensure that the information in this article is accurate, no liability is accepted by Bright Chilli Limited for any loss or damage caused to any person or business relying on any statement or omission in the content of this article.