Calculating your Sales and Profit Margin

When you are new to managing the accounting for a business it’s easy to not factor in several things when running your sales and profit margins. Simply subtracting the inventory costs from your actual sales does not give an accurate picture of your profitability, thus affecting your forecasting and actual budget. There is considerably more to add and subtract from the equation, such as: actual cost of employing an individual, associated costs with selling, marketing, and more. It’s important to consider these as you track your profitability over time.

Calculating your Sales and Profit Margin

Labor & Storefront
What are the costs related to selling a product, not just the product itself? Employing individuals has many costs that are usually accounted for, but it depends on what kind of selling you are implementing. Is it more of a temporary location for retail commerce? Are you seasonally or part time hiring paying commissions? These infrequent or inconsistent costs still need to be included.

Indirect Selling
There is cost and loss associated with your product and services. For instance, if there is a customer service issue, repair malfunction or unforeseen replacement, shipping charges or errors, any uncertain cost needs to be accounted for. You may learn that having funds in place for such unplanned events would be the proactive thing to do.

Content Marketing Costs
If you have someone working in the digital marketing department, writing social media blogs or related content to the business, then this may already be factored into the labor costs. However, if you outsource a marketing specialist or similar contractor, you will have to deduct this cost as well.

Paid Marketing
Many businesses, especially in highly competitive regions, will pay an advertising agency or hire an individual to manage online presence using Google AdWords, direct mail, data analytics, and digital marketing. These companies should provide tracking and analysis to provide businesses with a way to evaluate the best measures of marketing for their particular industry. This is an additional cost that may be forgotten depending on the amount of spend you allocate.