"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.