Simple solutions on how to determine your business’ profitability

Calculate your net profit margin

• Learn how to evaluate your net profit margin. It’s usually expressed as a percentage and shows how much of each rand you make will turn into profit.
• Revenue – Cost of Goods Sold (COGS) – Operating and Other Expenses – Interest – Taxes) / Total Revenue] x 100
• Net profit margin is an important indicator of your business’s financial health and tracking this number will help you forecast profits based on your revenue.
• Run these calculations monthly – comparing your net profit margin month-to-month will help keep you alert to potential negative trends or capitalize on positive growth.

Calculate your gross profit margin

• Next, calculate your business’s gross profit margin. This is an important step – particularly if you’re selling physical products. Doing so will tell you how much money you have remaining from product sales after you’ve subtracted the COGS, and whether you are pricing your products correctly. 
• Most companies express gross profit margin as a percentage of sales, and you can calculate it using the following formula:
• (Net Sales – COGS) / Net Sales
• The higher the percentage, the higher the profit you’re making off each product. Although a high number here is the goal, if you’re selling a large volume of products, it’s easier to settle for a lower gross profit margin. 
• Provided your gross profit margin isn’t decreasing, and you have a firm grasp of your net profit margin, you should be fine. If your gross profit margin is dipping, this calculation is the best way to tell whether it might be time to increase your product prices.