- 1. How to Calculate Profit Margin
Blaine Bertsch - Founder, Dryrun.com
- 2. Gross Profit Margin vs.
Net Profit Margin
Inordertocalculateyourprofitmargin,firstyou’ll
needtofirstundertstandthedifferencebetween
grossprofitandnetprofit.
Two types of profit margin:
Gross Profit Margin & Net Profit Margin
- 3. Gross Profit
Grossprofitcalculatesthetotalincomefromyour
goodsorservicesminusthecostofthosegoodsor
services(sometimesreferredtoasCOGS).
Revenue from goods/services - Cost of Goods/Services = Gross profit
- 4. Theonlyexpensesincludedaredirectly relatedto
thecreationofthosespecificgoodsandservices.
Not included in calculation
Other expenses, such as:
•payroll
•rent&utilities
•taxes
•otherbusinessexpenses
Expenses Included in
Gross Profit
- 5. See Your Profit & Loss Statement
(P&L,alsocommonlycalledan‘IncomeStatement)
Top lineofyourP&L: Revenue
Cost of goods sold(COGS)onP&L:Expenses*
*expensesforthosegoodsorservicesonly
Gather the Numbers
Revenue from goods/services - Cost of Goods/Services - Other Business Expenses = Net profit
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- 6. Net Profit
Netprofitalso includesallbusinessexpenses,not
justthedirectcostofgoodsorservices.
Revenuefromgoods/services-CostofGoods/Services
-OtherBusinessExpenses=Net profit
- 7. Expenses Included
in Net Profit
ALLbusinessincomeandexpensesareincludedin
thenetprofitcalculation.
Included in calculation
Other income & expenses, such as:
•investmentincome
•rent,utilities&payrollexpenses
•allotherbusinessexpenses
- 8. *Byincludingallbusinessesexpensesinanetprofitcalculationa
moredetailedpictureemergesofthebusinesshealth.
See Your Profit & Loss Statement
(P&L,alsocommonlycalledan‘IncomeStatement)
Bottom LineoftheP&L: Net Profit*
Gather the Numbers
Revenue from goods/services - Cost of Goods/Services - Other Business Expenses = Net profit
- 9. Calculating Profit Margin
- 10. 1. Gross Profit Margin
Grossprofitmarginisapercentageofincome
retainedasprofitafteraccountingforthedirect
costofthegoodsorservices
Gross Profit / Total Revenue x 100 = Gross Profit Margin
- 11. RevenuefromthetoplineofyourP&Lis$10,000
CostofgoodsorservicesfromyourP&Lis$8,000
Yourgrossprofitis$10,000-$8,000=$2,000
Example: Gross Profit
Margin Calculation
Gross profit margin is $2,000 / $10,000 x 100 = 20%
- 12. Net Profit / Total Revenue x 100 = Net Profit Margin
2. Net Profit Margin
Netprofitmarginisapercentageofincome
retainedasprofitafteraccountingforall
businessexpenses
- 13. RevenuefromthetoplineofyourP&Lis$10,000
CostofgoodsorservicesfromyourP&Lis$8,000
allotherexpensesareanadditional$1,000
YourNetprofitis$10,000-$8,000-$1,000=$1,000
Example: Net Profit
Margin Calculation
Net profit margin is $1,000 / $10,000 x 100 = 10%
- 14. It’s important to understand how
to calculate profit margin to have
a thorough understanding of the
health of your business.
Bothgrossprofitmarginandnetprofitmarginaretwocommon
keyperformanceindicators(KPIs)thatbusinessescloselymonitor.
The Value of Knowing
Your Profit Margin
- 15. Sign up for a 30 day free trialofDryrunandgaininsightinto
yourbusinesswithasimplewaytopicturerevenue,profitand
cash flowscenarios.
Blaine Bertsch
Founder Dryrun.com
Take my FREE MINI-COURSE for more detail on calculating profit margins and
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