Gross Profit Formula
gross_profit = selling_price - cost_price
Gross Margin Percentage Formula
gross_margin_percentage = gross_profit / selling_price * 100
Markup Percentage forumula
markup_percentage = 100 * gross_profit / selling_price
Simple gross margin calculator
Please enter your figures below:
What is a healthy gross margin?
Here are some examples and advice from successful founders:
Lessons we learned about gross margin
The most important thing we learned especially with gross margins is that there are certain aspects of your costs that you have no control over i.e. taxes, fees, etc. You learn to cherry pick the less important costs and find a way to reduce or eliminate them.
Knowing what margins we needed from all our products also taught us to be better negotiators for the products and services we use. As an example, when negotiating with a supplier every number and cost to the product they gave back to us I quickly ran through a spreadsheet that told me exactly what our gross margin was if we had that pricing.. I could then immediately counter with a more favourable pricing.
It simply became an one of the more important gauges we use to make important business decisions.
Mistakes first time entrepreneurs make.
I think a lot of people like us forget that there are hidden costs that come into play when it comes to figuring out what a healthy gross margin is.
Time is a big one, a lot of people forget to calculate time. Many small business manufacture or make their own goods. It takes time to make them. If you take 6 or 7 hours to handmake a product and you charge 50$ for it once you take into account materials cost, electricity etc you are working for well below minimum wage and it really not a sustainable business plan.
Not having a long term plan
Our long term plan was to give every single person who visits a beach the opportunity to experience the ocean and the joy of riding a wave. We knew the potential and scale for the industry. So we we anticipated we could get better pricing and better quality product as the industry grew and became more recognised.
This was a calculated risk, however we were willing to take this risk as we believed in the product and the fun and joy it brought to people using it.
It's important to do forecasting and media/PR planning but it really comes down to believing in your product enough to take the risks. Your passion is what will ultimately get you over the finish line.
Thanks for reading!
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