One of the important aspects of any business especially, if it’s a small and medium enterprise is to keep on crunching numbers. “Gross Profit Margin” is the resultant factor of crunching numbers. Gross margin is the difference between revenue and cost of goods sold divided by revenue.
Gross profit margin implies that you have made a profit in the trade and shows the percentage of revenue left after the cost of goods sold. This figure does not take other expenditures such as payroll, rent, bills and other utilities into consideration. Gross profit margin can be derived by dividing gross profit by sales.
Many people find it easier to work with gross margin because it tells you how much of the sales revenue or price is the profit. This is basically for the gross margin as a percentage of revenue. Usually, gross margin is used in sales in the following manner. 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).
To give you an example of gross profit margin with very simple numbers, let’s say you spend Rs.500 behind raw material products which become your cost of goods sold. Then, you collect Rs. 900 in revenue. When you subtract your cost of goods sold from your sales (revenue), the result is Rs.400. Then, if you divide that number by your revenue, the equation is Rs 500 / Rs. 900 = 0.55. Finally, multiply 0.55 by 100, and you get your gross profit margin of 55%.
When its small calculations then its fine but when you have multiple sellers, vendors, clients or customers and you are heavily dealing with numbers then it’s best to opt for a software that can help you in crunching all those financial numbers.
Could-based invoicing generator cum software such as Moon Invoice can bring a lot of relief to your everyday tasks. Moon Invoice, the free invoice maker helps you in tracking those numbers straight from the reports and calculate gross profit margin as well as other metrics. Below listed are few other amazing benefits of Moon Invoice.
1) Multiple Payment Methods
Add preferred payment processing channel for faster payments which improve your business cash flow. Also, get the benefit of PayPal button support.
2) Recurring Invoicing
Leave no room for error! With recurring invoices quickly generate daily, monthly or yearly invoices and also get a reminder about overdue invoices.
3) On-time Payments, Every Time
Always know beforehand about invoices & expenses becomes overdue. Easily automate payment reminder and get paid on time.
4) Bill In Any Currency
Speak in your clients’ financial language with multiple currency options available. No obstacle to doing business by selling products or services overseas.