Your gross profit margin is your company's pulse. Do you know how to calculate it?
The formula for gross margin is:
Gross Margin = (Gross Sales Revenue – Cost of Goods Sold) ÷ Gross Sales Revenue
Gross Sales Revenue = total money collected from sales
Cost of Goods Sold = total materials and manufacturing labor costs
Simply stated, the gross margin is the difference between the cost to produce something and its selling price, divided by the product’s price, expressed as a percentage. For example, if you sell something for $1 and it costs $0.40 to produce, the gross margin for that product is 60 percent: ($1 – $0.40) ÷ $1 = 0.60 or 60 percent.
The industry average is 33% for contract shops, for others around 40 - 50%.
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