Question

How can a business identify which products it makes have the highest margin, and therefore seek to concentrate more on the sale of those products vs other products they also may sell? For example, how could a restaurant gather/use this information to determine which specific items to try to target in selling to customers?

Answer 1

1	Bring out the Sales report of all the products for at least one year( or up to whichever past period data you may be having)
2	Find out the Sales and Cost of Each product
3	Find out Gross profit of each product (Sales- Cost)
4	Calculate gross profit margin of each product on total Sales { (Gross profit/ Total Sales)x100}
5	From the above calculation you will be able to identify which product has the highest margin. Rank them, then focus more on selling products with highest margin.

For example-A Restaurant Sells Five Products Tea, Coffee, Juice, Burger, Cold drinks

Sales Report of Each Product ( price is only for example purpose) given below

Tea= 700 unit @ 10$ per unit. Cost to make=7$

Coffee=200 units @ 15$ per coffee. Cost to make= 14$

Juice=500 units @ 25 $ per Juice. Cost to make = 18$

Burger= 1200 units@5$ per burger. Cost to make= 4.5$

Cold drinks= 1500 Units @3$ Per Cold drinks. Cost=2$

1	2	3	4	5	6	7	8	9	10
	Units Sold	Sales price per unit$	Sales Price$	Cost price per unit$	Cost$	Gross profit$	Profit share of the product on total sale	Demand/Sales Share of the product on total sale	Rank
Tea	700	10	7000	7	4900	2100	27%	21%	2
Coffee	200	15	3000	14	2800	200	3%	9%	5
Juice	500	25	12500	18	9000	3500	44%	38%	1
Burger	1200	5	6000	4.5	5400	600	8%	18%	4
Cold drinks	1500	3	4500	2	3000	1500	19%	14%	3
		Total Sales	33000	Total Cost	25100	7900

6	In the above example table on Column 8, 44% margin of the total margin comes from Juice, followed by 27% from Tea, followed by 19% from cold drinks.
7	If you observe, Juice,Tea and cold drinks constitute around 90%(44+27+19) of the margin from 73%(21+38+14) of sales
8	So it is advisable to focus more on selling Juice, Tea,and cold drinks.