Gross Profit Margin

Do you know how much it costs to proffer your good or service? Are you watching your profits drain away because the costs of production are so high?

The Gross Profit Margin lets you know how much of your revenue is left over after COGS. Understand how much your costs of production are.

At GEPC, we can help you understand the role that this margin has in your business. It’s time to take charge of your finances.

What is it?

Gross Profit Margin refers to the amount of money left over from revenues after costs of goods sold have been taken into account. Net Sales refers to the amount of money a business receives for the sales of its goods and/or services, while COGS refer to all direct costs associated with the production of a product/service, such as labour, materials, and overhead. 

The Gross Profit Margin is typically expressed as a percentage. Gross profit is not as comprehensive as Net Profit Margin, but it does provide insight into how much of an impact costs of goods sold have on profits.

How will it impact your business?

The Gross Profit Margin helps indicate how financially healthy a company is. Ideally the percentage should be high, as this indicates that a favourable amount of profit is retained from sales rather than going towards the production of the product. 

If the margin is excessively low, that would indicate that something needs to change in the production process to make it more cost-effective. 

With that being said, the ‘ideal’ gross profit margin varies by industry. High-volume, low-price goods don’t necessarily have to have a high gross profit margin to be profitable for the business, for example (i.e. grocery stores).

ready to Take action?

If your business is suffering from a low gross profit margin it’s a good idea to re-evaluate product/service pricing and the production process. An effort should be made to reduce costs associated with production, such as materials, labor, or overhead. 

Failing that, the business could potentially increase costs to the consumer to increase their margins. This should be done with caution as it can have the effect of alienating consumers.

want more information?

Schedule a free consultation at gregevans.ca or (705) 880-2224 to learn more about what we have to offer. It all starts with a conversation.