A gross profit calculator, or a markup calculator, will take your sales and cost of goods sold, and returns your gross profits. Gross profit indicate the profit generated by your business through manufacturing, purchasing and selling goods.
After you’ve been doing business for a while, you’ll want to know how profitable it is. Do you need to re-structure the pricing? Do you need to come up with a better business idea? What your customers are saying is important, but not enough to answer these questions.
You’ll need to figure out the profitability of your business in terms of hard cash flow.
That’s where a simple tool called the Gross Profit Calculator comes in, that’s usually free to use. Gross profit is usually presented as a percentage or ratio. We’ll take a look at the importance of knowing how to calculate your Gross Profit, with or without a calculator. And we’ll also look at a practical example as reference.
First you must ask yourself a crucial question.
As a new business owner, you’ll need to know your gross profit to tell whether or not your business is making money. You should be going through your income statement to figure out your business’s profits and losses.
All businesses need to earn a profit. When you understand it, and are able to calculate profit margins, you can look at percentage value instead of pounds. When you factor in all your costs into your profit margin, you can ensure your business stays in the green.
A gross profit calculator, or a markup calculator, will take your sales and cost of goods sold, and returns out your gross profits. The gross profit is the difference between the two. It indicates the profit generated by your business through manufacturing, purchasing and selling goods.
If you were to calculate this yourself, you’d need to know the following simple formula:
Gross profit = sales/total revenues – (cost of goods sold)
In other words,
Gross profit = total revenues – (purchase + direct expenses)
The Gross Profit won’t include things like GST and other taxes, which are generally passed on to the customer.
What it will include is things like the cost for, among other things:
A profit calculator makes calculations just a bit quicker and saves you time to carry on with other important aspects of your business.
From the gross profit, you can calculate the gross profit margins with the following formula: Gross profit margin or gross profit percentage = (Revenue – cost of goods sold) / Revenue X 100
If you’re using Excel for your calculations, you can:
Using the values for gross profit margin, you can further calculate Net profit margin includes taxes and other costs that aren’t associated with the cost of goods and services.
Let’s take a look at a simple example of Gross Profit and how it can be used to a business’s benefit.
Suppose a store buys a shirt for £40 and sells it for £100 in-store, no packing and shipping involved.
Consider the costs for the retailer. These include the costs of running the store, such as
Consider the operating cost to be around £28. So a £100 purchase, minus the £40 cost of the goods, minus
the £28 operating costs associated with the piece of garment leaves a profit margin of 32 percent.
If you consider another model of retail, the buy online and store-pickup model, then you’ll see through a comparison of the profit margins which model is more profitable.
For the same outfit that cost the retailer £40 to buy, there will be additional operating costs of
operating both channels. Suppose it costs £9 extra to keep the ‘buy online pickup in store’ channel open.
Then the total operating costs come to £37. The profit margin that’s left behind is 23 percent.
Clearly, from this illustration, you can see that running a brick and mortar store is more profitable in the example. Such illustrations can help business leaders make better decisions about the future of their business.
The GP calculator can be a very useful tool in the arsenal of the business owner or trader. It indicates how efficiently the business is using their resources to produce products or deliver services. A better understanding will offer the following benefits:
Now that you can calculate your gross profit using a GP Calculator and profit margins using Excel, you may wonder how your gross profit compares. For that, you’d need to look at the average margins for your industry. In retail, for instance, the typical profit margin is around 53%. Other industries have other average numbers.
Whatever your industry, profit margin calculators can help to make or break your business. Understanding how gross profit margins are affected by different business models is crucial to taking your business towards growth.
Disclaimer: These calculations are only for illustrative purposes and are not a substitute for professional advice. If you would like to know how gross profit margin can impact your numbers, you should speak to an certified financial advisor.