What percentage of return is considered acceptable

One of the key parameters for assessing business performance is the rate of return, as well as its relationship with the industry average level of profitability.

How to calculate profitability

Profitability ratio is important to distinguish between revenue. If revenue simply reflects the total turnover of the company (it is calculated in rubles), then profitability is the efficiency of its activities (expressed in%). Any business that has brought profit based on the results of the period under review can be called profitable. If a loss is received, profitability will be negative.

In trading activities, product profitability is calculated as the ratio of net profit to cost.

Profitability of goods (services) = net profit from sales (rendering of services) / cost price * 100%.

Profitability of sales (services) = net profit / revenue * 100%.

Let's say a company sells women's clothing. She bought goods worth 12 million rubles, and sold for 28 million rubles. At the same time, administrative and commercial expenses amounted to 5 million rubles. Thus, the profit amounted to 11 million rubles, and the profitability of goods - 11/12 * 100 = 91%.

Profitability of services is calculated in a similar way, in this case, the cost price does not include the price of the purchase of goods, but, for example, the cost of buying tools, remuneration of workers, etc.

In assessing the profitability of sales, net profit and turnover of the company are taken into account. If we take as an example the example of a clothing store, then it will be equal to = 11/28 * 100% = 39.2%. Using this formula, it is advisable to evaluate each product group individually. For example, the profitability of sales of T-shirts, sneakers, bags, etc. This will highlight the most effective positions in the assortment, as well as those that need to be worked out to increase the profitability.