To calculate gross profit margin automatically, just use our profit margin calculator (free tool Handbagio offers to businesses). It’s easy to use with no cost!
To calculate gross profit margin manually:
1. Subtract the COGS (Cost Of Goods Sold) from the net sales (gross revenues minus returns, discounts, and allowances).
X (Net sales) - Y (COGS) = Z
2. Divide this figure by net sales and you will get the gross profit margin in a percentage.
Z / X (Net sales) = % Gross profit margin
Handbagio's free profit margin calculator is fast and easy to use!
A 20% profit margin means that for every $100 in revenue, the business has $20 in net profits. This is a good profit margin, but it's still important to keep costs low so that the business can continue to be profitable.
To calculate a 20% margin, divide the selling price by 1 minus the margin percentage. So, if something costs $100 and you want to mark it up 20%, the calculation would look like this:
100 / (1 - 0.20) = 125
This means your product would need to be sold at $125 in order to achieve a 20% profit margin.
There are a number of ways to increase your profit margin, including:
Whatever strategy you choose, it's important to make sure that you don't sacrifice too much in the process. For example, increasing prices too much could cause customers to take their business elsewhere, while reducing costs too much could lead to a decline in quality.