How to Calculate Gross Profit Margin Percentage - This article will teach you how to calculate the percentage of a gross margin required in the financial aspects of a business plan. The article was written by an editor of Martins Library Team using chron.com materials. It is aimed at helping new accountants to get accurate data in their financial templates.
Many business enterpreneur that wants to calculate the gross profit margin of a business mayhave searched the internet to understand the method of doing the calculation to get an accurate data in the financial models of a business plan. There are several calculating software available on the internet that can help yyou calculate the gross margin percentage and there are also websites that provides the services too but the most important thing you need to know is that there is a very simple way of caalculting this said gross profit margin percentage manually without using any softwar. All youu need is a small ordinary calculator of your own that will do the job faster.
When I searched through several websites that has an explanation on it, i found different people giving out different methods but I really like the simple method written in Chron.com by Mark Kennan who is a writer based in the Kansas City area, specializing in personal finance and business topics. He did his explanations using the United States currency and arrived at his percentage. Since I wanted people in my location to have a better understanding, I decided to edit it and post it here on this library. I used the Naira currency for the calculation o that Nigerians and other African countries can understand it better. Here we go...
CALCULATE GROSS PROFIT MARGIN PERCENTAGE
First thing first, what is the gross profit? The gross profit margin expresses your profits as a percentage of the total sales revenues generated. This percentage allows you to compare the profits of businesses of various sizes because the results are measured as a percentage rather than in raw numbers. However, because different industries have different norms, gross profit margin is hard to compare between companies in different sectors. To calculate the gross profit margin as a percent, you need to know the revenues and the cost of the goods sold.
First Step
You will need to Subtract the total costs of your goods from the revenues the sales generate to find your gross profit. See this practical example; if you buy N20,000 worth of goods and re-sell them for N23,600, you would subtract N20,000 from N22,600 to get a profit of N2,600.
Second Step
After the subtraction, you will Divide your gross profit by your total revenue generated. In this example, you would divide N2,600 by N22,600 to get 0.11.
Third Step
Multiply the result from Second Step by 100 to find the gross profit margin percentage. Finishing the example, you would multiply 0.11 by 100 to find that your gross profit margin equals 11 percent.
First Step
You will need to Subtract the total costs of your goods from the revenues the sales generate to find your gross profit. See this practical example; if you buy N20,000 worth of goods and re-sell them for N23,600, you would subtract N20,000 from N22,600 to get a profit of N2,600.
Second Step
After the subtraction, you will Divide your gross profit by your total revenue generated. In this example, you would divide N2,600 by N22,600 to get 0.11.
Third Step
Multiply the result from Second Step by 100 to find the gross profit margin percentage. Finishing the example, you would multiply 0.11 by 100 to find that your gross profit margin equals 11 percent.
Reference
http://martinslibrary.blogspot.com/2015/07/how-to-calculate-gross-profit-margin.html
http://smallbusiness.chron.com/calculate-gross-profit-margin-percentage-4133.html