Your sales margin is an indication of how profitable your business is. The higher your sales margin, the more profitable your business. It's a smart number to track, and an easy calculation to perform.
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Things you need
- Financial reports
Select a time period, typically a month, quarter or year. All information you use from your financial reports should be from the same time period.
Total all revenue generated by sales. This will give you your total gross sales revenue.
Total all expenses related to sales. This number is your cost of sales. It should include only expenses that relate directly to sales, such as cost of goods and sales labour.
Subtract the cost of sales from the gross sales. This number represents your net profit from sales.
Divide your net profit by your gross sales. The result represents your sales margin.
Tips and warnings
- Don't confuse "sales margin" with "markup." They're both commonly used financial statistics relating to sales, but they represent different things.
- Your sales margin is only as accurate as the numbers you use to calculate it.
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