Profit Margin's Place in your Shoeing Business

Understanding this formula will help you see how much of what you charge for your work actually stays in your pocket

Profit margin is an excellent tool for tracking how much your farrier business is making, for making internal price comparisons, for determining how much you charge, and for helping make customer determinations.

Profit margin is simply a measure of profitability and can be expressed as net profit margin or gross profit margin. Gross profit margin is before taxes and net profit margin is after taxes. It is a ratio of profitability, calculated as profits divided by revenues or total income less expenses divided by total income.

Profit margin is displayed as a percentage from 0% to 100%. A 20% profit margin means an income of 20 cents for each dollar of sales.

To figure out your profit margin you must first calculate your total income generated, minus your total expenses. This is your profit. Divide this figure by the total income generated. This is your revenue.

Profit Margin = (Profit(Total Income Minus Expeses) / Revenue(Total Income)) X 100

You can determine your profit margin from your annual IRS, Schedule C. Line 1 is your gross receipts or sales. Line 28 shows your total expenses. If you use part of your home as a business write off, then that will be deducted also and you will use Line 31 as your net profit or loss. If your total sales (Line 1) are $80,425 and your total expenses (Line 28) are $45,125, your profit margin is:

Profit Margin = ($80,425-$45,125) / $80,425) X 100 = ($35,300 / $80,425) X

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Esco Buff

Esco Buff, CF, APF, is a farrier in Web­ster, N.Y., and holds a PhD in bus­iness administration. He is a member of the Interna­tional Horseshoeing Hall of Fame.

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