Gross Margin Percentage for your Business Plan
The gross margin percentage is one of the many accounting terms a business needs to understand. Firstly it is important to realize that gross margin is the real income a business earns by selling its products. Specifically it is the revenue left after deducting the cost of sales.
In the financial projections template gross margin is shown on the income statement. Furthermore it is calculated as a percentage of forecast revenue using the gross margin percentage.
Additionally we have created a free gross margin calculator showing how to carry out a gross margin calculation. The calculator is available for download at the link below.
Gross Margin Percent Calculation
It is important to realize that the gross margin percentage required for use in the business plan is that for the business as a whole. For an existing business, this can be obtained from historical data and is given by the gross margin percentage formula:
For a new business it may be possible to estimate the gross margin by looking at industry data. Additionally published accounts of comparative businesses in the same industry can provide an estimate.
An alternative approach is to calculate the gross margin for each of the businesses products individually. The individual margins are then used to provide a weighted average gross margin % based on estimated sales levels for each product. This approach is obviously easier when there are only a few products, but can be utilized by grouping products into categories.
The formula to calculate profit margin for a product is as follows:
To assist you in calculating a gross margin percentage, we have provided a free gross margin % calculator, available at the link below.
This calculator allows the product cost to be built up from its cost components and, by entering a retail price, will calculate the gross margin percentage and also the markup percentage for each product or product group.
If there are a number of products, the individual gross margin percentages calculated for each product, can be used to calculate the overall gross margin for the business by using our free weighted average gross margin calculator, available at the download link below,
Template Margin Definition
The gross margin definition for use in the financial projections template is the difference between the revenue and the cost of sales.
Furthermore at a product level it represents the difference between the selling price of your product and its purchase cost or its manufacturing cost.
Industry Specific Gross Margin Percentage Templates
The gross margin percentage for your business will depend on the type of industry in which it operates. Consequently we have created gross margin templates for a number of industries, some of which are listed below:
Gross Margin Projection Templates
- Food Truck Profit Margin Percentage Calculator
- Bakery Gross Margin Percentage Calculator
- Microbrewery Gross Margin Percentage Calculator
- Manufacturing Gross Margin Percentage Calculator
- Salon Gross Margin Percentage Calculator
What’s the Next Step?
This is part of the How to Create Financial Projections Guide a series of posts on how our template is used to produce simple financial projections for a business model.
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.