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Let's assume here that I have made these 4 sales in the past:

 1. Purchased for: $1,050; sold for: $1,200; profit $150, margin: 12.5%

 2. $2,900; $3,150; $250; 7.94%

 3. $3,800; $4,300; $500; 11.63%

 4. $1,550; $1,500; -$50; -3.33% (or should here be the margin considered 0%?)

My question is - how do I calculate the profit margin if one of the sales yilded a loss?

What's going to be the final profit margin? 7.185% or 8.0175%?

user984621
  • 333

1 Answers1

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Neither figure is correct. You cannot just find the average of the four percentages because they are percentages of different base costs.

The correct way to calculate the overall profit margin is to divide total net profit by total sales value. This gives:

$\displaystyle \frac{150+250+500-50}{1200+3150+4300+1500}= \frac {850}{10150}\approx 0.0837 = 8.37 \%$

gandalf61
  • 15,326