How to measure whether the gross margin is of quality?
Posted: Tue Jan 07, 2025 4:12 am
You now have your gross margin in percentage. Now, how do you know if it's good or not?
Your margin may be positive, but it still isn't enough to cover your business's overhead costs.
In this sense, to analyze whether your margin is sufficient and its quality level is good, you must do an evolutionary analysis that, together with other indicators, involves studying them in different time periods.
You can do an analysis that includes, for example, sales bosnia and herzegovina phone data as well. This will let you know if your gross profit is increasing and if this growth rate is matched by the margin.
Because it can happen that your profit grows and your gross profit margin decreases.
This is because there may be an improvement in nominal terms (number of sales) but that improvement may not be reflected in the operational efficiency of the business ( gross margin ). In this scenario, you have to be careful. If you have to increase your fixed costs to increase your sales and this continues over time, you may end up with losses.
For now, you can have one less expense: with Tiendanube you can open your online store for free . In Argentina and Mexico it is free forever, and in Chile and Colombia you have a 14-day free trial to start selling online. It is very easy to design it just the way you want it and you do not need advanced technical knowledge.
Gross margin: simple spreadsheet examples
Let's assume that we have a hamburger business. Our direct expenses will include: bread, hamburger, toppings, vegetables and cardboard boxes to deliver them to our customers. Let's start putting together our table to calculate the gross margin :
Example to calculate the gross margin of a business.
The sum of our monthly direct expenses is $8,000 pesos. Now, let's suppose that the hamburgers had a selling price of $200 pesos and that during one month we sold 70. The income we obtained was $14,000 pesos. With all this information, we can calculate the margin we are looking for:
Example to learn how to calculate gross margin.
To obtain it as a percentage, we are going to multiply what we obtained by 100. This gives us the margin in percentage expression as we saw above:
An example of how to calculate the gross margin for a business.
As you can see, the formula is the same as the one we discussed in the previous sections, only now we put it into practice. It is worth reminding you that you need to subtract indirect costs so that you can make decisions with a more complete picture of your total expenses.
Your margin may be positive, but it still isn't enough to cover your business's overhead costs.
In this sense, to analyze whether your margin is sufficient and its quality level is good, you must do an evolutionary analysis that, together with other indicators, involves studying them in different time periods.
You can do an analysis that includes, for example, sales bosnia and herzegovina phone data as well. This will let you know if your gross profit is increasing and if this growth rate is matched by the margin.
Because it can happen that your profit grows and your gross profit margin decreases.
This is because there may be an improvement in nominal terms (number of sales) but that improvement may not be reflected in the operational efficiency of the business ( gross margin ). In this scenario, you have to be careful. If you have to increase your fixed costs to increase your sales and this continues over time, you may end up with losses.
For now, you can have one less expense: with Tiendanube you can open your online store for free . In Argentina and Mexico it is free forever, and in Chile and Colombia you have a 14-day free trial to start selling online. It is very easy to design it just the way you want it and you do not need advanced technical knowledge.
Gross margin: simple spreadsheet examples
Let's assume that we have a hamburger business. Our direct expenses will include: bread, hamburger, toppings, vegetables and cardboard boxes to deliver them to our customers. Let's start putting together our table to calculate the gross margin :
Example to calculate the gross margin of a business.
The sum of our monthly direct expenses is $8,000 pesos. Now, let's suppose that the hamburgers had a selling price of $200 pesos and that during one month we sold 70. The income we obtained was $14,000 pesos. With all this information, we can calculate the margin we are looking for:
Example to learn how to calculate gross margin.
To obtain it as a percentage, we are going to multiply what we obtained by 100. This gives us the margin in percentage expression as we saw above:
An example of how to calculate the gross margin for a business.
As you can see, the formula is the same as the one we discussed in the previous sections, only now we put it into practice. It is worth reminding you that you need to subtract indirect costs so that you can make decisions with a more complete picture of your total expenses.