Calculating Gross Margin

Calculating Gross Margin is an important exercise and discipline.  After God, margin is probably the single most important elemental factor for organizational viability.

We discuss this in an article titled God First Then Gross Margin.

I would invite you to read that article if you haven’t already.

Simply stated, if your organization doesn’t have adequate margin, it will be tough to scale — if not survive.

If you have started an article series on calculating your Break-even Point, you can also read these primer articles:

• Break-even Point
• The Break-even Model

Calculating Gross Margin — “How To”

So, the next question is how to calculate Gross Margin.

Simply stated, Gross Margin is calculated as Gross Revenue less Direct Costs.

And, it is here where I will refer you to a series of articles that will help you do just that.

Calculating Gross Margin — The Recipe

Here’s how you can calculate Gross Margin:

1. Identify your Hard Costs.  Read the article Hard Costs.
2. Identify your Soft Costs.  Read the article Soft Costs.
3. Determine your Selling Costs.  Read the article Selling Costs.
4. Combine the above and calculate your Gross Margin. Read the article Constructing Gross Margin.

Conclusion

Now, you know how to calculate your Gross Margin.

I encourage you to determine Gross Margin for your entire line of products and services.  We will discuss more about this later.

Be encouraged to read the next article: Below the Line Costs.

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