How to calculate? There are several formulas used to calculate sales profitability: net, gross and operating profit. After all calculations, the indicators are analyzed and certain conclusions are made.
In this article:
What is return on sales and why should you calculate it?
Indirect factors affecting sales profitability
Key Factors Affecting Sales Profitability
Formula for calculating kuwait whatsapp numbers sales profitability based on net profit
Disadvantages of the Net Profit Return on Sales Formula
Other formulas for calculating sales profitability
Examples of calculating sales profitability using formulas
Norms and formula for calculating the sales breakeven point
What does an increase and decrease in sales profitability indicate?
Sales Profitability Analysis
5 Ways to Increase Sales Profitability
Frequently Asked Questions About Return On Sales
In-Depth Guide: How to Cut Your Ad Costs by 25% with Artificial Intelligence
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What is return on sales and why should you calculate it?
Profitability is understood as the ratio of profit received over a certain period of time and revenue earned over the same period. The profitability of sales by revenue is determined by a formula and indicates what profit each ruble earned by the company brings. Let's say that if the profitability in a month was 40%, then each of the rubles earned brought a profit of 40 kopecks.
What is return on sales and why should you calculate it?
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The profitability ratio allows you to understand whether your business is working effectively, monitor its development, and develop necessary measures when indicators deteriorate. Let's look at this system using an example.
The organization's revenue and net profit are increasing every month.
January February March
Revenue 454 545 ₽ 714 285 ₽ 1 250 000 ₽
Net profit 100,000 ₽ 150,000 ₽ 200,000 ₽
Everything seems to be fine. Let's look at the profitability for the same months.
January February March
Revenue 454 545 ₽ 714 285 ₽ 1 250 000 ₽
Profit (net) 100,000 ₽ 150,000 ₽ 200,000 ₽
Profitability 22% 21% 16%
It is clear that there is a decline in profitability. That is, the company's efficiency is deteriorating monthly, and profit is approaching zero. If profitability in March had remained at the same level as in January, then with similar revenue, net profit would have been 275,000 rubles, and not 200,000 rubles as we have.
Knowing how the profitability of sales is calculated using the formula, you can quickly identify the links where there are problems and develop methods to correct the situation.
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Indirect factors affecting sales profitability
Any business should operate in such a way that profitability constantly increases or at least remains at a consistently high level. Therefore, it is necessary to understand what factors this depends on. They are divided into external and internal.
External factors
These are factors that are not influenced by the actions of the organization, business owner or personnel. That is, one can only adapt to them.
These factors include:
laws concerning the work of entrepreneurs;
product popularity;
market situation;
sanctions;
political situation;
scale of competition;
location of the organization.
Internal factors
These are factors that the company can influence and regulate if necessary. The manager or authorized employees are engaged in control and regulation of the situation inside the company. This is important to do, because even under good external conditions, a business can bring losses if internal processes are not set up correctly.
Internal factors
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Internal factors are:
quality of manufactured products or services offered;
pricing;
professionalism of employees;
company reputation;
logistic aspects;
technical equipment;