Gross Margin Influencing Factors

Gross Margin Influencing Factors

Gross margins are an important ratio for evaluating the performance of the organization. An increase in gross profit margin ration is regarded as good performance, while a decrease in such ratio is regarded as bad performance. Gross margin influencing factor includes sales price and cost of sales, or both.

1.    Sale price

Gross margin first influencing factor is selling price. Gross margin factor will fluctuate with the fluctuation of sales price (keeping the cost of sales constant). It means an increase in sales price would increase the gross margin; similarly a decrease in price would adversely affect the gross margin.

2.    Cost of Product

Gross margin second influencing factor is cost of product or sales. If we decrease the cost of sales, it would improve the gross margin (keeping the sale price constant). Similarly a decrease in increase in cost of product would lower the gross margin.

3.    Sales & Cost of Sales

Gross margin can be effect by both at the same time, so we can study both influencing factor at same time. Practical both of these factors are required to be student at the same time.