N4 Entrepreneurship & Business Management 2.5 Gross profit percentage


Gross profit percentage is the gross profit of a business expressed as a percentage of sales. Calculating your gross profit percentage is fairly simple. In the corner shop example, sales are R1000 and the gross profit is R500.


DEFINITION


Net profit in a business refers to the money left after all costs (fixed & variable) are deducted.


Ask yourself: (Spaza Shop example) 1. What is my gross profit? (R500) 2. How many sales (R) do I need to generate the gross profit? (R1000) 3. Thus:


Gross Profit × 100 Sales


1


= 500 1000


= 50% 2.6 Net profit percentage


The net profit percentage is calculated in exactly the same way as the gross profit precentage except that Net profit is expressed as a percentage of sales. Thus in the corner shop example, where the net profit is R300, the net profit percentage is:


Net Profit%: Net Profit × 100 Sales


1 Thus: R300 R1000 = 30% 2.7 Weighted average gross profit percentage


Calculating the gross profit percentage of a business that is selling more than one product is more complex. The mark-up percentages may vary from product to product and also, certain products are selling better than others. This means that a product’s particular share of the total sales must also be considered. The example below explains how the gross profit percentage of a business selling only two products is calculated.


Example:


The Spaza Shop is selling only milk and bread. Milk accounts for 65% of all sales. Furthermore, the milk costs R7.50/l and sells for R10.50. Bread costs R6.00 and sells for R9.00. What is the WAGPP for this Spaza Shop?


Steps: 1. Determine each product share of sales as a percentage. 2. Calculate the GP% for each product (or group). 3. Multiply the Sales % with the gross profit % for each product. 4. Add the answers together to get the WAGPP.


× 100 1


Formula: Net profit % = Net profit × 100 Sales


1


× 100 1


Formula:


Gross profit % = Gross profit × 100 Sales


1


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