Correctly calculating your profit margin means the difference between your sales making you money or the opposite.
VAT , however, should not be included in this calculation, but will be added later .
In this post we reveal the key formulas for obtaining the profit margin , as well as the common mistakes when calculating it.
First of all, it is worth highlighting that ' income ' is not synonymous with ' profits ' , a very common mistake that usually comes to mind for those with little experience in the world of commerce.
Therefore, let's define what the profit margin is : we are talking about a profitability measure that is obtained by subtracting the retail price (RRP) from the ghana email list production costs (operating costs) or acquisition of the product (if it is produced by third parties) .
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How is profit margin calculated?
First of all, keep in mind that in the profit margin you are charging for your work .
After all, it is your personal contribution , your professionalism, so do not underestimate it . However , as you know, in addition to the costs generated by this professional activity (or what is the same, the price per hour worked), there are other costs, such as travel, materials, waiting times, taxes, etc.
But you should always apply your profit percentage, especially if you have a wide range of prices. And you should do it in such a way that your result is positive , taking into account , in addition to all the variables mentioned, other variables such as the price your client is willing to pay, the prices of your competitors or the quality of the product or service you are offering .
The margin, a great ally for applying discounts and promotions
So how do you arrive at the final price of a product or service taking into account these expenses ? The simple answer is that a sale is profitable , so you can afford to reduce your profit percentage the more services or products you manage to sell . In addition, your customers will be happier , since they can benefit from the discounts or promotions that you carry out in your business.
The most common mistakes
However, calculating the profit margin is not that simple and different variables have to be estimated . You will see it more clear.