What is Gross Profit?


What is Gross Profit and how much should I be earning?  Gross profit is a financial term referring to the direct result of sales performance and impacted by a few different variables.  While the sales price you earn and related cost you pay for a particular product chiefly determine the gross profit you achieve, there are other related variables that determine the gross profit you are earning.

The Variables

Some of those variables are sales discounts given to your customers, the MAP price set by the vendor, and purchase discounts offered by your suppliers. Gross profit can be negatively impacted if the sales staff is discounting the products they are selling. Furthermore, gross profit tends to vary by product categories, from large-ticket items to print music and accessories.

Manage and Increase Gross Profit

There are a few things you can do to help manage and increase gross profit.  By asking your vendors to “keep their pencil sharp” on prices and tying sales staff compensation to profits, you can begin to attack the trend of decreasing profit margins and see an increase in gross profit dollars.  Remember, gross profit “percent” does not pay the rent and other operating expenses; it is the actual profit “dollars” generated, at any gross profit percent, that covers those expenses.

Watch this video to learn more about ways to increase your gross profit, putting more cash directly to the bottom line!