et's also consider a few more formulas, for example:
ROS of sales depending on the profit margin
The costs of most firms consist of fixed and variable components, depending on the volume of products produced.
Let's imagine that Natalia decides to make more products for the holidays because she expects to increase sales. Because of this, her variable costs will increase during this period.
To understand whether such a strategy was justified, it is necessary to find ROS (return on sales) using the formula depending on the marginal profit, that is, calculate the difference between the existing revenue and the costs, which are related to variables. This is done as follows:
ROS = (Profit Margin / Revenue) * 100%
Let's say Natalia spent 200,000 rubles honduras phone data to purchase, transport, and package goods and move them to storage locations. The income minus taxes was 400,000 rubles. This amount characterizes the volume of marginal profit. Let's find the ROS coefficient using the formula: 400,000/200,000 × 100% = 50%.
ROS Sales by Gross Profit
This sales profitability ratio, using a formula that takes into account gross profit, allows you to understand whether a particular line of business is profitable or not, such as expanding the range of services or releasing a new product. It is defined as follows:
ROS = (Gross Profit / Revenue) * 100
Gross profit shows how much money an organization will have left after deducting from revenue the costs of purchasing raw materials, paying salaries, paying rent and transportation, and so on.
Let's figure out how to conduct an analysis. Let's imagine that Natalia decided to expand the range by adding handmade soap and bath salt. After a certain time, the revenue from the sale of salt reached 250 thousand rubles, and the gross profit was 90 thousand rubles. The revenue from the sale of soap was 340 thousand rubles, while the gross profit reached 110 thousand rubles.
ROS Sales by Gross Profit
Source: shutterstock.com
We substitute the values into the formula for return on sales by gross profit and get:
Profitability from salt sales: 90,000/250,000 x 100% = 36%
Profitability of soap sales: 110,000/340,000 x 100% = 32%
It is clear that selling soap brings Natalia a large profit, but selling bath salt has a higher profitability. It turns out that salt production is less expensive, so it is the most profitable for Natalia.
ROS sales calculated based on operating profit
It shows the degree of efficiency of using available resources to generate income. Operating profit is represented by the difference between revenue and the amount of fixed and non-fixed costs. That is, this is the money that the company has after paying all the costs of manufacturing and selling products.
Formula for calculating sales profitability as a percentage:
ROS = (Operating Profit / Revenue) * 100%
If the profitability found in this way has fallen over a certain period of time, it means that at some stage each earned ruble required a greater expenditure of resources. For example, the cost of goods from an intermediary could have increased, the rent of the premises could have become more expensive, perhaps the salaries of the staff increased.
Let's analyze the formula for calculating the sales profitability ratio in this situation: in November, Natalia received revenue in the amount of 720,000 rubles. She spent 350,000 rubles on the production of goods, and paid 40,000 rubles for rent. Then operating expenses were: 350,000 + 40,000 = 390 thousand. Operating profit is equal to: 720 thousand - 390 thousand = 330 thousand. As a result, the profitability was: (330,000/720,000) x 100% = 45.8%.
Increase Profits by 200%: Download 5 Powerful Tools for Free
Alexander Kuleshov
Alexander Kuleshov
General Director of Sales Generator LLC
Read more posts on my personal blog:
Over the past 7 years, we have conducted over 23,000 comprehensive website audits and I have learned that all of us as leaders need clear and working algorithms for our marketing and sales.
Today we will share with you the 5 most valuable documents that we have developed for our clients.
Download for free and implement t