I’m trying to get my mind around my finances and want to put this in terms I, someone who isn’t bad at math but isn’t super, can understand. Something like the title says - for every dollar I spend in X service area of my business, I get $Y back."
So for an area of my business, let’s say that I sold $100,000. With COGS and salary, it cost me $40,000. My gross is $60k, or 60%.
So back to my question, in this case is it “for every $1 I spend in this area, I get $1.40 back”? I just can’t get me head around this, so thanks for the help.
** and yes, I know there are more things to consider like other overhead and operating costs, but I’m trying to keep the example simple.
Total Revenue: This is the total amount you sold, which in your case is $100,000.
Total Costs: These are your expenses, including COGS (Cost of Goods Sold) and salaries, which total $40,000 in your scenario.
Gross Profit: This is what you earn after subtracting the costs from the revenue. In your case, $100,000 (revenue) - $40,000 (costs) = $60,000 gross profit.
Now, to find out how much you earn back for every dollar you spend, you divide the gross profit by the total costs:
Return per Dollar Spent = Gross Profit / Total Costs
In your case:
Return per Dollar Spent =$60,000 / $40,000 = 1.5
So, for every dollar you spend in this area of your business, you actually get $1.50 back. This means you are making a 50% return on each dollar spent.