Gross Profit and Cost of Goods Sold

Gross profit is the difference between the price you sell items for, and the price you buy items for.

Several reports will show gross profit numbers, and you may require more explanation as to where these numbers come from.

Our system always knows how much you sell items for, but it does not always know how much you paid to buy them. Therefore, any gross profit report will be based on several assumptions. 

First of all, GST is excluded from all reports showing gross profit. 

Average Cost Price

Ideally, when adding stock, you will provide the per unit cost of the items you purchased, thus we can use this in our algorithm. 

If you buy more items over time, the cost of goods may change, and we will adjust on a first in first out basis. This means, that if you have 5 items in stock, we use an algorithm, to consider the cost of the last 5 items acquired, and we ignore any purchases prior to that. 

We do not consider freight in your cost price. We only consider the cost price you enter on the form when adding stock (or when using purchase orders)

Supplier Price

If a supplier price has been entered, then we will alternatively use the supplier price to calculate your cost of goods sold. This requires some effort to maintain, but gives you control over what it would cost you to replace the current items today.  Once entered, the supplier price does not change, until you change it. 

If there is no supplier price on record for a product, we will default it to the first known cost price entered when receiving new goods. 

Trade Ratio

Most reports that show a cost price or gross profit option, will include a report configuration parameter called "Trade Ratio". This number is a fast way for you to produce a meaningful report if there is no cost price nor supplier price known. The default ratio is usually 0.5. This means that your wholesale price is half you retail price (a 100% markup).  If you use a different formular, please adjust the ratio so something that works for you. 

eg wholesale ratio 0.8 would equate to a 25% markup. An item costing $80, plus 25% equals $100 retail. 

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