How to Calculate the Average gross Profit for a Start-Up Business

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For a new business, calculate the average gross for your business by following these steps:

1 For each product or service that you sell, list every individual item that goes into that product, including piece-rate labor and commissions. For example, Antoinette buys dresses from outside suppliers and resells them. The costs of the dress are the major component of the total product cost. She may add the cost of the preprinted bag to derive the total cost of the sale.

2 Once you have a complete list of all the cost components for your products or services, add up the cost of each item.

3 Write the selling price of the item below the total cost of the item.

4 Subtract the total cost from the selling price to derive the gross profit from each sale of that item.

5 Divide the selling price into the gross profit to derive the gross profit percentage for each product.

6 Repeat for each product you’ll sell; if you have more than four or five individual products, then it’s better to group them by gross profit percentage rather than to make an estimate for each individual product.

7 Write down how much total dollar sales you expect for each product or product group.

8 Multiply the gross profit percentage by the total dollar sales to derive the dollar gross profit from each product.

9 Add together the total dollar gross profit figure to derive the total dollar gross profit from the year’s sales.

10 Divide the dollar gross profit by the annual sales revenue to derive the average gross profit percentage for the year’s sales.

Completing this gives you an average gross profit percentage for your business.

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