[Market-farming] big difference between gross profit and gross profit MARGIN
pat at meadows.pair.com
Tue Feb 8 17:55:34 EST 2005
On Fri, 4 Feb 2005 17:03:52 -0800, you wrote:
>If you read my email closely you will see that I said GROSS PROFIT MARGIN not gross profit. 2 totally different things.
>Gross profit margin=((gross sales-cost of sales)/gross sales)X100
>Read closer still and you will see that I said my gross profit margin averages about 65%. The 50% figure you are quoting is my threshold figure used when evaluating a business opportunity. Over 50%gpm=yes, under50%gpm=no.
I can see possibilities of this, as a hard and fast rule,
not working under certain circumstances.
Suppose your business is a farm stand. Further suppose you
don't make money on tomatoes: you just break even on them.
BUT, your customers come to you to buy tomatoes. And while
they are there, they also buy corn, lettuce, cucumbers,
melons, and strawberries.
You stop selling tomatoes since their gross profit margin
does not equal 50%. Your customers stop coming to you, and
go to your competition where they can buy tomatoes plus
other produce - they want one-stop shopping. You go broke
and the competition thrives.
So I cannot see, no matter how much an accounting rule it
may be, that it would always be beneficial to have a certain
percentage of gross profit margin required per crop.
Maybe this is a flaw of considering everything from the
standpoint of 'financial books'.
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