Gross Profit Margin Calculator
Your gross profit ratio tells you how much of each sales Rand you can expect to use to cover your operating expenses and profit. In other words, it measures the difference between what it costs to produce a product and what you're selling it for. While some ratios uncover trends by looking at the past, the gross profit margin is a tool you can use to chart your company's future.
The formula: Net sales divided by cost of goods sold
|How to use this calculator
Your latest income statement holds the numbers you need to calculate your company's gross profit margin ratio.
A gross profit margin of 0.33:1 means that for every Rand in sales, 33 percent will cover your basic operating costs and profit.
Some business owners will use an anticipated gross profit margin to help them price their products. While other factors -- such as competition and demand -- may play into pricing decisions, a gross profit margin is a good starting point for product pricing. For example, if a product costs R8 to produce, and your gross profit margin is 20 percent, you can calculate your pricing by dividing your cost by (1-.0.2). In this case, R8 divided by .8 would yield a price of R10.
You can also use your gross profit margin ratio to help you set and monitor sales goals for your company
Because costs for raw materials, labor and manufacturing expenses all play into your profit margin ratio, a change in this ratio over time could mean it's time to look for new suppliers or review your pricing structure.