Improving your store’s gross margin is the first step towards earning more income overall. In order to calculate gross margin, you need to know the costs incurred to produce your product. To understand this better, let’s quickly define both Cost of Goods Sold (COGS) and gross margin.
Cost of Goods Sold (COGS): These are the direct costs incurred in producing products sold by a company. This includes both materials and direct labor costs.
Gross Margin: This number represents the total sales revenue that’s kept after the business incurs all direct costs to produce the product or service.
Here’s how you can go about calculating gross margin:
Gross Margin (%) = (Revenue – COGS) / Revenue
The difference between how much you sell a product for, and how much the business actually takes home at the end of the day is what truly determines your ability to keep the doors open.
