Every company aims to get the most benefit from its activity. To do this, it is necessary to apply various marketing techniques and business strategies to achieve this goal.
In the same way, these strategies do not work alone, that is why over time different mathematical formulas have been developed that have the function of an indicator. That is, through these formulas we can know the performance of the company in economic areas.
That is why we must know the appropriate formulas for a specific indicator. Thus, the result will show the panorama of the situation in a quantitative way .
In the same way, these quantitative data allow us to understand the reality of the company . Well, they do not refer to accounting for nothing as the language of business in the company .
One of these formulas is the net profit margin of profit . In this article we will explain everything about this callsign and how you can calculate it.
What is the net profit margin of a business?
A company dedicated to the sale of goods or services needs to obtain the greatest benefit from its economic activity. That is why you must perform the best administration with respect to costs within the process.
Thus, you must keep costs at a point where profit is the best. This is achieved by controlling costs. For this, it is necessary to increase the efficiency of the elements that make up the production system of the company and develop a good corporate strategy .
Now, the net profit margin of profit is the formula that most accurately tells us the benefits that a company obtained from the sales it made. One more example of the advantages of financial accounting .
Many people confuse it with gross margin. But these callsigns are completely different. Well, the gross margin determines the profit taking into account only the cost of production. That is why people do not consider this the best indicator of the profit of a company.
On the other hand, the net profit margin of profit takes into account both production costs, transportation costs, advertising, taxes, among others. Likewise, people consider it the most accurate indicative for the profit that a company has from its sales.
A low net profit margin means that company profits have fallen. Thus, this can occur for different reasons, one of which may be that the prices of the product have fallen in the market .
How is the net profit margin of a company calculated?
Many think that calculating the net profit margin is very complicated. Well, it is the opposite, this indicator is obtained by a simple division. This is given by the following formula: Net Profit Margin = Net Profit / Sales. Where each house one means:
- Net profit margin : Company profits from sales.
- Net Profit : Refers to the total profit, where all operating costs and taxes are included.
- Sales : Total amount received for sales.
For example, if Net Profit = 340,000; Sales = 3,060,000. So, the Net Margin = 340,000 / 3,060,000 = 0.11 = 11% profit.
How can I improve the net profit margin of the company?
To improve the net profit it is necessary to implement strategic planning in the company . To do this, it is necessary to take considerations in different areas:
First of all, you should consider a low-priced product. Well, it is easier to sell something cheap than expensive. Also, taking into account the price that the market manages is very useful, since you can guide yourself from it to establish contempt for your product.
In the same way, you must establish a correct price and demand relationship. Because if your strategy tries to put your price below the others , you must increase the amount of sales to get a high profit.
Finally, you must carry out a total cost control . It is not just the production, This includes everything you pay in the company, from public services, to product advertising.
