Retirement Business Gross Margin Calculator
[expand title=”Gross Margin Explanation”]
Gross Profit / Net Sales
The gross margin is the percentage that the company retains after deducting the direct costs of producing the goods and services sold.
The higher the percentage, the more the company profits on each dollar of sales which is then available to pay its other costs and obligations.
For a retailer it will be their markup over wholesale. Larger gross margins are generally considered ideal for most companies, with the exception of discount retailers who instead rely on operational efficiency and strategic financing to remain competitive with lower margins.
Retailers can measure their profit by using two basic methods, markup and margin, both of which give a description of the gross profit. The markup expresses profit as a percentage of the retailer’s cost for the product. The margin expresses profit as a percentage of the retailer’s sales price for the product. These two methods give different percentages as results, but both percentages are valid descriptions of the retailer’s profit. It is important to specify which method you are using when you refer to a retailer’s profit as a percentage.
Some retailers use margins because you can easily calculate profits from a sales total. If your margin is 30%, then 30% of your sales total is profit. If your markup is 30%, the percentage of your daily sales that are profit will not be the same percentage.
Some retailers use markups because it is easier to calculate a sales price from a cost using markups. If your markup is 40%, then your sales price will be 40% above the item cost. If your margin is 40%, your sales price will not be equal to 40% over cost (in fact, it will be approximately 67% above the item cost).
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