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Jan 06

Use A Gross Profit Calculator To Understand Your Margins

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There are so many aspects to running a small business, and it is helpful when certain things can be automated or at least made easier with calculators. A case in point is a Gross Profit Calculator, also called a markup calculator produced by Perfect Your Trading.

 

Who should read the article?

This article informs traders, businesspersons, and readers who:

  •       Want to understand how to calculate Gross Profit with or without a calculator
  •       Want to use Excel to calculate Gross Profit margins
  •       Aren’t sure why they need a Gross Profit Calculator as a business owner or trader

 

What does the article describe?

The crux of the article revolves around the need for a business owner to understand whether or not their business is profitable. Income statements are usually in pounds, and it’s hard to tell from these numbers alone whether or not the business is making money. According to the article, calculating percentage values is far more helpful in analyzing and understanding business performance.

The writer then goes on to describe how to calculate gross profit margins. You can start by using a Gross Profit Calculator to calculate the gross profit. For someone who is entirely new to doing business, the writer helpfully suggests expense items that count and those that don’t.

Calculations are explained with the help of an illustration. The illustration also presents a scenario in which understanding the gross profit can help a business owner make a more informed decision about which business model to adopt for their retail store.

 

Is your business profitable?

A burning question on every beginning business owner’s mind is; are we profitable yet? The trajectory to profitability varies per industry. For example, a tech start-up with a run-way (money in the bank to cover their monthly outgoings) of 20 months has slightly different metrics to measure growth and profitability compared to a local shop.  

Let’s take the local shop as an example. The local business owner most probably has less upfront money to invest. For this specific purpose, let’s say the person has a run-way of 6 months. 

The run-way includes lease, grocery supplies and staff payments. In order to break even on the initial investment, the business person needs to measure the income and compare it to his outgoing. With this information, he can set the right prices for his products and optimise his journey to profitability.  

That is what the Gross profit calculator was made for. Running a business is already hard enough, it makes sense to use all the tools at your disposal.  

Depending on what type of business it is, there will be different hurdles towards generating your first profit.

 

Using Excel to calculate profit margins

The writer also describes how to use Excel spreadsheets in order to calculate gross profit margins. They take the reader step-by-step into the process of entering net sales and cost of goods sold into their respective columns and using the formula for profit margins.

The writer offers a few pointers on the need for using a GP calculator as a trader or business owner. The reasons include better profit management for business growth, protection against market volatility, better decision-making, and better monitoring of multi-product or multi-project businesses.

The article wraps up with advice on how a business owner can figure out where they stand with their profit margins in their particular industry.

 

Final thoughts

The article Are you using a gross profit calculator to understand your margins? offers illustrations and formulae to help business owners figure out their profit margins. The article will also help small business owners without accounting staff on board feel confident enough to make calculations for better decision-making about what changes to make to their business models or where to put their money.

Overall, the takeaway is that businesses need to be aware of their profits and to keep an eye on the various profit channels in order to make plans for their business. Feedback from customers and market surveys are not as telling as the hard numbers and profit percentages.

 

Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.

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