This weighted average gross margin calculator will help you to estimate the average gross margin of your business for use in the Financial Projections Template.
Generally a business will have a number of product lines and know the gross margin on each. Accordingly to calculate the weighted average gross margin for the business it is necessary to weight each product gross margin by its corresponding revenue.
How to Calculate Weighted Average
As an illustration, suppose a business has annual sales revenue of 500,000 from two products A and B. Product A has a gross margin (GM%) of 50% and annual sales revenue of 100,000. Product B has a gross margin of 30% and annual sales revenue of 400,000. In this instance the calculation of the weighted average gross margin (WAGM) is as follows.
WAGM = (GM% A x Revenue A + GM% B x Revenue B)/ Revenue WAGM = (50% x 100,000 + 30% x 400,000) / 500,000 WAGM = 34%
As can be seen each products’ margin is weighted by its corresponding revenue. This result is then divided by the total revenue of the business. In this case with a simple two product business the weighted margin is 34%.
In similar fashion the Excel sheet, available for download below, helps a business calculate the weighted average gross margin by entering gross margins and revenue for up to ten product lines.
Weighted Average Gross Margin Calculator Download
The weighted average gross margin calculator is available for download in Excel format by following the link below.
Users use this accounting template at their own risk. We make no warranty or representation as to its accuracy. We are covered by the terms of our legal disclaimer, which you are deemed to have read. This is an example of an accounting format that you might use. It is purely illustrative. This is not intended to reflect general standards or targets for any particular company or sector. If you do spot a mistake in the template, please let us know and we will try to fix it.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.