Gross margin (also called gross profit margin or gross profit rate) is the difference between revenue and cost before accounting for certain other costs. Generally, it is calculated as the selling price of an item, less the cost of goods sold (production or acquisition costs, essentially).
Purposes of Calculating Gross Margin
The purpose of margins is “to determine the value of incremental sales, and to guide pricing and promotion decision.
“Margin on sales represents a key factor behind many of the most fundamental business considerations, including budgets and forecasts. All managers should, and generally do, know their approximate business margins. Managers differ widely, however, in the assumptions they use in calculating margins and in the ways they analyze and communicate these important figures.
This spreadsheet walks you through the steps needed to calculate the markup. In this example, coffee is used, but it can be any product or service. The numeric values in ‘blue’ are what creates the calculations up top.
Note: You will sent a link to the spreadsheet shorty after filling out the form. Thank you.