Order Margin and Gross Profit Margin

This section describes how the system calculates the order margin and the gross profit margin for each sales order.

Commission Cost

The StreamV system uses the commission cost field in each order line for margin calculations and commission purposes.

The commission cost is calculated during sales order entry or editing, and it is based on the commission cost that is maintained for each Inventory item. 

The commission cost used for a specific order line normally defaults to the Catalog or Inventory commission cost for the item, but it can be adjusted by the system if the operator is processing an order line that qualifies for special pricing, or a rebate.  In both of these situations, the commission cost for the order line can be less than the value being maintained in the Catalog and Inventory records.

The commission cost for an order is the total of the commission cost in each Open, Backorder, or Closed sales order line multiplied by the quantity in each order line. Voided, Deleted and Cancelled lines (status V,D and K) are not included in the order totals.

The commission cost is stored in the sales order currency, and it is stored on a per unit basis (like the sales order price field).

The accounting system uses the average weighted cost for each item (or the purchase order cost for the shipment if the order line is being processed as  a vendor shipment).  The commission cost is used only for sales reporting and commission purposes.

GPM Calculation

This section describes how the system calculates the gross profit and gross profit margin for a sales order.

Calculating the Sales Order Total

The system calculates the sales order line item total (using the price x qty for each line) and it adds any shipping charges and sales taxes to get the order total.  The sales tax is applied to the items and to the shipping charges on the order if appropriate (based on the Taxcode being used and whether shipping is taxed for sales into that Taxcode).  The open, closed and backordered lines of the sales order are totaled.  Status V, D, and K order lines are excluded.

Calculating the Terms Cost

The system then calculates any terms fee to be applied to the order margin calculation (the terms cost is used to add a cost to the order for credit card processing or other terms related fees).  The amount calculated is based on the terms code being used for the order and the Terms cost or Terms cost percentage that is entered for that terms code.  The terms cost is applied to the entire order total (subtotal, shipping, and tax).  The system applies the amount calculated using the percentage or the terms cost specified in the record (whichever is greater).  Note: The terms cost is only used when calculating the order margin it does not actually get posted to the financial system and it is not actually charged to the customer.  It allows a loaded cost (that reflects your internal costs including credit card fees) to be applied to the sales orders for commission purposes.

Calculating the Order Margin

Order Total Commission Cost + Shipping charge Shipping Cost Terms cost = Order Margin.

Calculating the Gross Profit Margin

(Order margin / (line total + shipping) *100) = GPM

GPM Calculation Example:

Sales Order is for 1 item at price of $100.00. 

Commission Cost is $80.00

Shipping Charge 20.00

Shipping Cost      10

Tax rate 7.50%, shipping is taxable.

Terms cost percentage is 3%. Terms cost is 3.00

Order Total Calculation

100.00 (subtotal) + 20.00 (shipping) + 9.00 (tax) = 129.00

Terms Cost Calculation

3.87 (3% of order total including tax).

Order Margin Calculation

100 (line total) 80 (commission cost) + 20 (shipping) 10 (shipping cost) 3.87 (terms fee) = 26.13

Gross Profit Margin Calculation

26.13 (Order Margin) /100(line total) + 20(shipping) = .21775

.21775 *100 = 21.775% or 21.78%

More:

Order Attributes