Budgeting gross profit for retail is probably the least completed of any industry, but still extremely important.
- As with the production industries, companies that resell tangible items must know what price the market will bear for their products. Determining a sales price can be any method, from an in depth market study, to a simple exercise in shopping your competitors.
- Next you will need to know how many of your products you will be able to sell in each of the next twelve months. Again what the market will bear.
- If your company is in resale, your cost of goods sold is the price you can obtain inventory, plus any carrying costs. Carrying costs can be interest to finance the inventory, the warehouse to hold the inventory and freight to transport the products to the warehouse.
- To determine revenue take the number of units you will be able to sell each month times the market price you have determined.
- For the cost of goods sold the calculation is the number of units sold each month times the cost to product one unit.
- Now subtract the monthly cost of goods sold from the monthly revenue to obtain the gross profit.
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