Gross margin is the dollar profit divided by sell price. So, (sale price - purchase price)/(sale price).
You may be thinking of markup, which is the profit dollars as percentage of cost, and is often used in retail.
A 100% markup results in a 50% gross margin.
Re:Starting a Bike Shop
by hessenwolf on Friday February 01, 2013 @08:48AM
(#5150616)
Dollar profit is a bit misleading. Gross margin is the formula you give, but not taking into account operating costs.
That was the gross margin on bikes, which I'm pretty sure means (sale price - purchase price)/(purchase price). Correct me if I'm wrong about the formula.
Not included in this is 36% number is the shops cost in selling the bike, which includes,
* Assembling the bike (unpacking, assembling, getting rid of packing materials, which are substantial).
* Tuning and Selling the bike.
* Post sale service.
At least for Erik's, a big part of the post sale service was to get people back into the shop and try to sell them accessories. I don't mean un-necessary parts or work, but things like clothes, bike computers, etc..
For many shops I suspect there is not much profit per bike left after these other expenses.
Erik's stream-lined much of this process, for example most bikes were assembled at the central warehouse by a dedicated crew.