How to Calculate Gross Profit for Services
A service-based business, like one dependent on the sale of merchandise, needs to keep track of its gross profits to help determine whether the business is a successful one. Finding out the gross profits for a service-based business is a simple bit of financial math. All that's required is that you know precisely how much money you've taken in for the service during the calculation period, the costs of any goods you needed to sell to make those profits, as well as any discounts or returns you made on the services rendered. Once you have these figures available, the rest of the process consists of a single calculation.
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Instructions
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Examine the accounting books for the past year, and add together all monies received for your services over the year. Mark the total down as your net receipts for the year.
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Subtract the cost of goods sold, if any, as well as any returns, rebates or refunds made on your services from the net receipts to determine the gross profits for your services for that year. For most service-based businesses, there will be no cost of goods sold applicable to the provision of those services. To determine the cost of goods sold, find your beginning inventory for the year in your account books, add the inventory purchased throughout the year and then subtract the ending inventory for the year. This will give you the inventory amount expended in providing your services throughout the year (the cost of goods sold).
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Determine the gross profit for the year when the cost of goods sold does not have an effect on your income by omitting the cost of goods sold from your calculation. For example, if you're a lawyer, you have no need to sell merchandise to make your revenue for the year. Use the net receipts amount as your gross profits amount on such occasions.
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References
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