How to calculate the level of profitability

Profitability it is important to distinguish between revenue. If the revenue merely reflects the aggregate turnover of the company (it is calculated in rubles), the profit margin and the efficiency of its activities (expressed in %). Cost effective you can call any business, which brought in the end of the reporting period profit. If a loss, profitability is negative.

In trading activities the profitability of the product is calculated as the ratio of net profit to cost.
Profitability of goods (works, services) = net income from sales (services)/cost*100%.
Profitability of sales (services) = net profit/ revenue*100%.
For example, the company is engaged in sales of women's clothing. She bought goods in the amount of RUB 12 million, sold for 28 million. At the same time, administrative and selling expenses amounted to 5 million. Thus, the profit amounted to 11 million rubles, and the profitability of goods - 11/12*100=91%.
Service profitability is calculated in a similar way, in this case the cost is not taken into account the purchase price of the goods, and, for example, purchase costs of tools, labour, etc.

In evaluating the profitability of sales is accounted net profit and turnover. If to take for a basis the example of a clothing store, it will be equal = 11/28*100%= 39.2%. With the help of this formula, it is desirable to evaluate each product group separately. For example, the profitability of sales of t-shirts, sneakers, bags, etc. It will highlight the range of the most effective positions, as well as those on improving the profitability of which is necessary to work.

Acceptable level of profitability by sector

A single acceptable level of profitability does not exist, it varies depending on the industry. So, for example in the field of mining of minerals is considered to be normal profit margin above 50% and in the field of woodworking is not up to 1%.
Researchers estimate that the average ROI is about 12%. However, by itself this value is almost meaningless if not to compare it with similar indicators of competitors or average industry values.
Please note that if the level of profitability of your business deviates significantly from the industry average (10%), it increases the likelihood of a tax audit.

According to RIA-rating, the average profitability of sales by industry in 2013 were:
- mining - 26.3%;
- chemical industry - 18.3%;
- textile manufacturing - 2.8%;
- agriculture: 11.7%;
- construction - 6.7%;
- wholesale and retail trade - 8.2%;
- financial activities - 0.4% (2012, Rosstat);
- health care - 6.5% (2012, Rosstat).
In the services sector is considered an acceptable margin of 15-20%.

If you have come to the conclusion that it was seriously lagging behind its competitors in terms of efficiency of doing business, you need to work on improving profitability. This task can be achieved due to the competent marketing policy aimed at increasing the customer base and the growth of turnover of goods, and at the expense of more lucrative offers from suppliers (or subcontractors).