Overall Gross Margin on Multiple Gross Margins

[esam18]

Hi,

I'm creating a business plan for a start-up publishing house. I have to calculate gross profit and gross margin for each of the three books that will be launched, based on three separate sales scenarios. I then have to calculate gross profit and gross margin for the business as a whole.

However, on one of the sales projections the revenue on the books is actually negative, meaning that I am trying to calculate the business' overall gross margin based on a negative revenue and a negative gross profit. Is this possible? At the moment it is coming out as a smaller negative percentage than the scenario in which each book turns a profit but the business as a whole makes a loss.

Thanks

 

[jaybee3]

Revenue, AFAIW, shouldn't be negative as it's your income. Sales of books should always yield a positive result, before you factor in the costs of production.

Can you maybe post your data to see if your calculations are correct? Or at least your formulae for gross margin and gross profit.

These may help you:

Net Sales = Sales - Sales Returns and Allowances
Gross Profit = Net Sales - Cost of Goods Sold

Net Income = Gross Profit - Operating Expenses
Profit Margin = Ratio of Net Income to Net Sales

 

[esam18]

Revenue, AFAIW, shouldn't be negative as it's your income. Sales of books should always yield a positive result, before you factor in the costs of production.

Can you maybe post your data to see if your calculations are correct? Or at least your formulae for gross margin and gross profit.

These may help you:

Net Sales = Sales - Sales Returns and Allowances
Gross Profit = Net Sales - Cost of Goods Sold

Net Income = Gross Profit - Operating Expenses
Profit Margin = Ratio of Net Income to Net Sales

Thanks for the reply. Each individual book has a positive income (sales), and costs (e.g. advances to the author, production costs etc.). So I'm not having any trouble with the individual gross margins for each book. The problem is that on one proviso I'm calculating the cost of each book outweighs its sales, meaning the book makes a loss overall. So when I then try to calculate the total business gross margin it is based on a negative revenue. Here is a screenshot of the overall business calculations with the formula at the bottom

. As you can see, we're making a bigger loss on proviso 1, but it is resulting in a lower negative gross margin.

Hope that clarifies my question.

Thanks

 

[esam18]

i see the screenshot didn't work. i can't figure out how to attach an image on this forum so was trying to attach a link. this is the direct link https://www.dropbox.com/s/gskkl5ebzmysr2m/Screenshot 2013-11-15 13.53.37.png.

 

[jaybee3]

In your example, your Gross Margin shouldn't be on Total Revenue ... it should be on Total Net Sales (Net Sales Book1 + Net Sales Book2 + Net Sales Book 3) (not shown).

You still get a negative, but probably more in line with what you're expecting.

 

[esam18]

But then where do the individual book costs come into it? I'm definitely supposed to calculate things like author advances and production costs within the costings for each book, not in the general company costs.

 

[jaybee3]

Yeah so you have (Book 1 Net Sales - Book1 Costs of production) to get your Gross Profit for Book 1 .. repeat for the other 2 books.

You can then split your house costs over the three books to calculate their individual Net incomes.

The Sum of the Net sales of Books 1, 2 and 3 and the sum of the Net incomes of books 1, 2 and 3 can then be used to calc your company level totals.

 

[esam18]

ok great, thanks very much for your help