GROSS PROFIT MARGIN

What is the Gross Profit Margin? A business

financial ratio A measure of

financial performance

Money remaining after deducting direct costs from revenue

What is the purpose of calculating the Gross Profit Margin?

Allows management, investors and financiers to evaluate performance

Compare to previous periods + industry avarages

How do you calculate the Gross Profit Margin?

Gross Profit Margin = (Revenue - Direct Costs) / Revenue x 100

Revenue is $ from customers

Direct costs are costs that can be directly linked to the items sold

What factors impact on the Gross Profit Margin?

Discounting in promotional periods

theft of goods not increasing selling

prices after increased their cost price

Staff incorrectly charging for goods or services

Customers switching to goods or services with a lower gross profit margin

Wastage in time or materials.

What is the Gross Profit Margin like? Household

budget Money left over

after paying rent or loan repayment

Gross Profit is money left over after paying for the direct costs

When do businesses typically calculate the Gross Profit Margin?

Every month Key

performance indicator

New products added to the assortment

http://www.skillmaker.edu.au/gross-profit-margin/