Gross Profit Margin
This is a very positive gross profit margin for the business as it enables a big enough margin to make profit. The higher the profit margin the better however it also depends on the market the business is operating in, for instance the food industry would not have very high profit margins whereas clothes industries have very high profit margins. The sporting industry, especially the cricket industry holds quite high profit margins on their products, especially the imported products because they are made in countries that have cheap labour for instance India or Pakistan.
Products made in these countries can have profit margins up to 80% profit margins. Most companies selling cricket equipment do keep high profit margins above 65%, therefore I could still increase my profit margin by 5-10% to increase profit, but I need to take into consideration the fact that my USP is that I will be selling high quality products at low prices, so I need to ensure I keep my prices below competitors. Net Profit Margin: This ratio manages the relationship between the net profit (profit made after all overhead expenses have been deducted) and the level of turnover or sales made.
Net Profit Margin = Net Profit / Turnover * 100 Net Profit Margin = 21,725 / 116,220 * 100 Net Profit Margin = 18. 7% The higher the net profit margin the better also. This is because the net profit margin establishes whether the firm has been efficient in controlling its expenses. However the net profit margin of the business has come out to be quite low. A low net profit margin means that the overhead costs are too much or are increasing too quickly.
In this case the net profit margin can be seen to be quite low because there are many over head costs and this can be due to the fact the business is new and hasn’t adapted into the market yet. I feel that the net profit margin will eventually start to increase after the first few years when the overhead costs are gone lower because the business will be adapted and also the fact that whenever a new business is opened they start off with very high overhead costs, hence I feel there is nothing to worry about.
The net profit margin can also be increased by raising sales revenue whilst keeping expenses low or even by reducing expenses whilst maintaining the same level of sales revenue. Evaluation: Recommendations: The business of selling online has potential to be a successful business and has a lot of scope to expand as proven by the above feasibility study.