Finding Financial Information

Preparing the Financial Statements

Cost Drivers
Pricing
Gross Profit Margin
Sales and Marketing
Operational Expenses

Step 3: Calculate the Gross Profit Margins for Your Company

Calculating gross and net margins is quite simple, once you can get your costs into the right format.

Gross Profit Margin = Gross Profit / Revenue;

Gross Profit = Revenue – Cost Of Goods Sold (COGS)

COGS = ONLY the costs you can directly associate with a specific instance of making your product or providing your service.

To get an idea of what costs are typically included in Cost of Goods Sold for your industry, ask people within the industry or, to at least get a general sense, look at the annual reports of businesses similar to yours. Within the “Consolidated Statements of Operations” section, they will list their costs of goods sold, though the descriptions of each category are usually not very specific.

In calculating your Revenue and COGS, this is where it helps to have an average price and cost information per unit or service provided. Determining Revenue is fairly easy; take your average price per unit or customer and multiply by the expected number of customers.

For those of you with advertising-driven businesses, calculating revenue is rather similar. Advertising rates are usually quoted as an average cost per thousand (CPM) ads delivered; multiply your expected CPM by the (number of instances you expect the ad will be delivered / 1000). Those instances might be circulation, page views, click-throughs, or some other measure depending on your industry and business, but the same rules generally apply.

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