Gross Margin equals Gross Profit divided by Gross Sales. Gross
Profit is Gross Sales minus VAT or sales tax minus sales commissions minus Cost
of Goods Sold. Gross Margin shows the share of Gross Sales that is left after
you pay the government, your sales agents and your suppliers (the latter
includes only variable costs).
Gross Margin on a percentage basis needs to be maximized, of
course, but within a certain limits that depend on your industry and your
product. If you are selling a relatively small number of high-margin products,
you have one target (benchmark); if you are selling a large number of
low-margin, you would have a very different target.
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