In this post we will talk about another of the indicators that we must take into account in our business, this allows us to know the margin by which we are working in our business, and will allow us to understand where the deficiencies are. In other words, a low margin means that our prices do not match our expenses or we are having too many expenses , so we must take action.
Gross Margin Profitability Indicator , this indicator allows us to know the relationship between total sales and total expenses of the company, that is, where the margin of our products is around, in the previous entry we made some calculations of 50% of the margin, But are we really fulfilling it?
Let's take an example, let's say that to have a custom tshirt we invested RD$189, and throughout the month we made 300 tshirts, we are assuming a 50% margin in each product, but taking into account the errors, and the failures, it may be that this margin has varied, so we do the calculation:
RD$189(cost per tshirt)*300(number of tshirts made)= $56,700, our total costs were RD$56,700, to this amount we are going to add that for each tshirt we have had errors that have cost us RD$20, it would be RD$20*300= RD$6000, our total costs they are RD$56,700+ RD$6,000=RD$62,700
Of these 300 tshirts, we sold 200 at the price of RD$475, and the rest at RD$300, our total income was: 200*RD$475=RD$95,000, 100*RD$300= RD$30,000, that is, RD$125,000
Now let's evaluate our gross margin profitability,
Gross Margin= RD$125,000(total sales) - RD$62,700(total expenses) / RD$125,000(total sales)= (RD$125,000-RD$62,700)/ RD$125,000 = 0.49= our gross margin is 49%, that is, although we have had losses, we have managed to maintain the margin on our products.
We will continue this series of indicators that allow us to know the state of our business, if you would like to know a specific topic, do not hesitate to leave it in the comments.