Now, we will look more closely at Gross Profit.

Gross Profit is our most important profit at NCAB. Most of our Gross Profit will be spent covering expenses such as salaries, traveling, and office space. Only a small part of the Gross Profit will be left as Operating Profit, or EBITA. That is why it’s so important that we keep Gross Profit at a healthy level.

Quoting the right Gross Margin is mathematics, knowing the customers and making them understand our values, and finally being bold. This video is about the math.

To find the Gross Profit, you just take the price that the customer pays, and subtract the Costs Of Goods Sold (COGS).

If we put numbers on it: when the price is 100 000, and the COGS are 70 000, Gross Profit is 30 000.

But the Gross Margin is not quite as straightforward. Gross Margin answers the question: out of the price, what percentage is profit? In this case, of course, this is 30%.

But we usually don’t start with the price; we start with the COGS. So here is a trick question: if your COGS are 70 000, how many percent do you need to add to get the price? 30%? No, that’s only 21 000. Starting from the COGS, you need to add 43% to get a Gross Margin of 30%.

As seen, this can be a bit difficult, so we need to be careful. Up next, we will practice with a few examples.

And remember, without gasoline, there is no driving. And without profit, there is no NCAB.