Gross Marketing is a key indicator of a company’s profitability. It is important to monitor this metric on a regular basis to keep track of the performance of your business.
To calculate your gross profit, start by listing your COGS (cost of goods sold). Then subtract returns, discounts, and allowances from the total to get net sales.
Cost of goods sold (COGS)
Whether you are a retailer, manufacturer, or SaaS company, the cost of goods sold is a critical element in your business’s financials. To keep your costs low, you need to look for inefficiencies and improve the production process. To do this, you can negotiate with your suppliers and use technology to automate certain tasks. Keeping your COGS stable can help you plan for future growth.
You can find the COGS on your business’s income statement under sales (or revenue). Subtract it from the total sales to get gross profit, which is the amount a company earns before deducting other expenses.
The COGS includes all the costs directly related to a product, including the cost of raw materials and labor. It excludes indirect costs such as distribution and sales & marketing. This helps you avoid over-reporting gross profit, which can lead to inaccurate tax calculations. It also alerts you to any unscrupulous accounting practices. For example, service-based companies such as airlines and hotels may sell gifts or merchandise, which can affect their COGS.
Gross profit margin (GPM)
GPM is a measure of how much of your sales revenue remains after subtracting the cost of goods sold. It does not include other operating expenses, such as payroll or overhead costs. This metric can help you determine whether your company is profitable. However, it is best used in conjunction with other metrics to get a complete picture of your business’s profitability.
A low gross profit margin could indicate that your production costs are too high compared to the amount of revenue you’re making. To improve your margin, you can try reducing your production costs or increasing prices.
Although indirect costs, like marketing and warehousing, aren’t included in the gross profit formula, they still have an impact on your company’s bottom line. It’s important to track these costs on a regular basis and monitor trends. You can do this by using expense reporting and card payment reminders. A business tracker app, like Geckoboard, can help you keep this metric top of mind.
Advertising costs
The advertising costs metric is an important one to track for all of your online marketing campaigns. It is used by businesses to measure the effectiveness of their campaigns and determine ROI. It should be included in your business report alongside other key metrics like revenue, new customers, and churn rate.
Advertisement costs are the expenses associated with promoting products or services through traditional and digital media. They include ad space, sponsorships, event costs, collateral, and tastings. These are all important factors to consider when developing your marketing budget.
Advertising firms often operate and are reimbursed based on gross impressions. This metric is defined differently by different parties, but it generally refers to non-duplicated impressions served by a specific campaign. A more precise metric, target rating point (TRP), expresses the same concept but with regard to a defined audience. For example, a shaving cream brand might be interested in TRPs for men aged 18 and up.
Revenue
Gross revenue is the total amount of cash inflows generated by a business within a specified period. This metric measures the value of goods and services sold to customers, as well as other cash inflows such as interest, royalties, and investments. To calculate gross revenue, you must account for all recognizable sources of income and exclude business expenses.
This includes any sales discounts, returns, or allowances. For example, if you offer a customer an early payment discount of 1% of the invoice amount, this must be deducted from the gross sales figure.
If you have a high gross margin, it means that your products or services are selling at a higher price than the cost of production. This enables you to make a profit on each sale and increase your sales volumes. However, you must remember that gross margins do not factor in expansion revenue obtained from cross-sales and upsells. Moreover, they do not reflect the quality of your products or service.