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Practice

Order a profit-analysis workflow

Order a reliable workflow for calculating revenue, cost, profit, and a profitability ratio.

Profitability bridge

Trace quantities through revenue, cost, profit, and ratio

Revenue
Units × selling price
Direct cost
Units × defined direct unit cost
Gross profit
Revenue − direct cost
Margin
Gross profit ÷ revenue
Markup
Gross profit ÷ cost

Margin and markup use the same profit numerator but different denominators. Keeping that bridge visible prevents a plausible but mislabeled percentage.

Arrange in the correct order
  1. 1. Use revenue for margin or cost for markup, then check
  2. 2. Subtract direct cost from revenue
  3. 3. Calculate the defined direct cost
  4. 4. Calculate revenue from quantities and selling prices
  5. 5. Define the products, period, and included costs