|
There are some key figures in the Profit & Loss Statement which are
interesting to look at. One of the most interesting figures is Gross Profit
which is also called Contribution Margen:
The difference between Turnover and Variable Cost shows how much money you
have got left to pay your rent, telephone, internet access, marketing and your
own salary (profit of the firm).
Example
If you sell CDs at $ 25.- on the internet and promote it like this: "No
postage and packaging", your calculation could look like this:
|
Sales price (Turnover): |
25.00 $. |
|
- Purchase price at CD company: |
18.75 $ |
|
- Packaging and padded envelope: |
01.00 $. |
|
- Postage: |
02.00 $. |
|
= Gross Profit: |
03.25 $ (13 %) |
This calculation shows you that each time you sell a CD at 25 $. you have 3.25 $
left. This has to cover other expenses than those related directly to
purchasing, packing and dispatching the CD.
Contribution Ratio
You can also calculate a percentage, then it is called contribution ratio. It
is done like this:
- Gross Profit x 100 / sales price = Contribution Ratio
In the above CD example the contribution ratio is:
- 3.25 $ x 100 / 25 $. = 13 %
- Calculate your contribution ratio
Gross profit when selling services
The Gross Profit differs substantially between different trades. The above
example generates a relatively modest contribution margin.
Compare this to a consultant giving management and development presentations
which may cost 1.500 $ per presentation. Here you may only have 50 $ of direct
expenses for the Taxi taking you to the hotel where the presentation is held.
This generates a 1450 $ Gross Profit (97 % in contribution ratio).
But then you probably have considerable fixed costs and you cannot expect to
sell presentations 40 hours a week.
The same thing applies to accountants, lawyers, psychologists and others.
- Go to next
business issue: Acting om Gross Profit
|
