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Posted: Sun Dec 22, 2024 5:42 am
We see that profitability has fallen over the past two years, but the reasons are unknown. They can only be determined by conducting a more detailed analysis, which includes:
Assessing the change in tax and deduction costs - this is required for NI calculations.
Determining the profitability of manufactured products.
Calculation of profitability is individual for each sales manager.
Calculating the profitability of product advertising.
If you provide any services, their cost kuwait whatsapp numbers price includes: equipment for the sales managers’ workplace (computers and office equipment, telephone, proportional payment of utility bills, rent per m2 ) , payment for their labor, payment for communication, advertising, purchase of software, payment for virtual PBX.
You can use a simpler formula for calculating sales profitability based on gross profit:
ROS = GP (gross profit) / NS (total revenue).
But it is better to define it for calculating narrow indicators, such as the profitability of a specific product, manager, website page, and so on.
Each employee may have their own sales system: one sells expensive products rarely, while the other sells cheaper products more often. In this case, it will be difficult to determine the net profit, i.e. the margin after tax payments. You need to know the margin for each product and each seller (data is available in the CRM system). Perhaps the drop in profitability is due to the fact that sales of the most marginal products have decreased.
Read also!
"B2B Marketing: Key Features, Promotion Channels"
Read more
Other formulas for calculating sales profitability
Let's also consider a few more formulas, for example:
ROS of sales depending on the profit margin
The costs of most firms consist of fixed and variable components, depending on the volume of production.
Let's imagine that Natalia decides to make more products for the holidays because she expects to increase sales. Because of this, her variable costs will increase during this period.
To understand whether such a strategy was justified, it is necessary to find ROS (return on sales) using the formula depending on the marginal profit, that is, calculate the difference between the existing revenue and the costs, which are related to variables. This is done as follows:
ROS = (Profit Margin / Revenue) * 100%
Let's say Natalia spent 200,000 rubles to purchase, transport, and package goods and move them to storage locations. The income minus taxes was 400,000 rubles. This amount characterizes the volume of marginal profit. Let's find the ROS coefficient using the formula: 400,000/200,000 × 100% = 50%.
ROS Sales by Gross Profit
This sales profitability ratio, using a formula that takes into account gross profit, allows you to understand whether a particular line of business is profitable or not, such as expanding the range of services or releasing a new product. It is defined as follows:
ROS = (Gross Profit / Revenue) * 100
Gross profit shows how much money an organization will have left after deducting from revenue the costs of purchasing raw materials, paying salaries, paying rent and transportation, and so on.
Let's figure out how to conduct an analysis. Let's imagine that Natalia decided to expand the range by adding handmade soap and bath salt. After a certain time, the revenue from the sale of salt reached 250 thousand rubles, and the gross profit was 90 thousand rubles. The revenue from the sale of soap was 340 thousand rubles, while the gross profit reached 110 thousand rubles.
ROS Sales by Gross Profit
Source: shutterstock.com
We substitute the values into the formula for return on sales by gross profit and get:
Profitability from salt sales: 90,000/250,000 x 100% = 36%
Profitability of soap sales: 110,000/340,000 x 100% = 32%
It is clear that selling soap brings Natalia a large profit, but selling bath salt has a highe
Assessing the change in tax and deduction costs - this is required for NI calculations.
Determining the profitability of manufactured products.
Calculation of profitability is individual for each sales manager.
Calculating the profitability of product advertising.
If you provide any services, their cost kuwait whatsapp numbers price includes: equipment for the sales managers’ workplace (computers and office equipment, telephone, proportional payment of utility bills, rent per m2 ) , payment for their labor, payment for communication, advertising, purchase of software, payment for virtual PBX.
You can use a simpler formula for calculating sales profitability based on gross profit:
ROS = GP (gross profit) / NS (total revenue).
But it is better to define it for calculating narrow indicators, such as the profitability of a specific product, manager, website page, and so on.
Each employee may have their own sales system: one sells expensive products rarely, while the other sells cheaper products more often. In this case, it will be difficult to determine the net profit, i.e. the margin after tax payments. You need to know the margin for each product and each seller (data is available in the CRM system). Perhaps the drop in profitability is due to the fact that sales of the most marginal products have decreased.
Read also!
"B2B Marketing: Key Features, Promotion Channels"
Read more
Other formulas for calculating sales profitability
Let's also consider a few more formulas, for example:
ROS of sales depending on the profit margin
The costs of most firms consist of fixed and variable components, depending on the volume of production.
Let's imagine that Natalia decides to make more products for the holidays because she expects to increase sales. Because of this, her variable costs will increase during this period.
To understand whether such a strategy was justified, it is necessary to find ROS (return on sales) using the formula depending on the marginal profit, that is, calculate the difference between the existing revenue and the costs, which are related to variables. This is done as follows:
ROS = (Profit Margin / Revenue) * 100%
Let's say Natalia spent 200,000 rubles to purchase, transport, and package goods and move them to storage locations. The income minus taxes was 400,000 rubles. This amount characterizes the volume of marginal profit. Let's find the ROS coefficient using the formula: 400,000/200,000 × 100% = 50%.
ROS Sales by Gross Profit
This sales profitability ratio, using a formula that takes into account gross profit, allows you to understand whether a particular line of business is profitable or not, such as expanding the range of services or releasing a new product. It is defined as follows:
ROS = (Gross Profit / Revenue) * 100
Gross profit shows how much money an organization will have left after deducting from revenue the costs of purchasing raw materials, paying salaries, paying rent and transportation, and so on.
Let's figure out how to conduct an analysis. Let's imagine that Natalia decided to expand the range by adding handmade soap and bath salt. After a certain time, the revenue from the sale of salt reached 250 thousand rubles, and the gross profit was 90 thousand rubles. The revenue from the sale of soap was 340 thousand rubles, while the gross profit reached 110 thousand rubles.
ROS Sales by Gross Profit
Source: shutterstock.com
We substitute the values into the formula for return on sales by gross profit and get:
Profitability from salt sales: 90,000/250,000 x 100% = 36%
Profitability of soap sales: 110,000/340,000 x 100% = 32%
It is clear that selling soap brings Natalia a large profit, but selling bath salt has a highe