Copied to clipboard!

Profit to Sales Ratio Calculator

Contributor
Reviewed by Abhinash J
Editor

Published: April 11, 2023

Profit to sales is a key metric for every business. This ratio tells you how well your business handles its finances. With a profit-to-sales ratio calculator, you can determine this metric in percentage and make valuable decisions regarding your business’s financial health.

Net Profit

Total revenue minus all expenses and taxes
\$
25000

Net Sales

Total revenue minus returns and discounts
\$
25000
Profit to Sales Ratio Calculator
20%

See how it's calculated

Oops! Something went wrong while submitting the form.

What is Profit to Sales Ratio?

The profit-to-sales ratio is a metric that tells you how much profit you have gained over a particular period from your sales operations. It gives managers and sales VPs a clear picture of how well their sales team is performing, where they are struggling, and which issues need to be fixed to develop a streamlined sales system.

How to Calculate Profit to Sales Ratio?

Here’s how you can calculate the Profit to Sales Ratio:

Profit to Sales Ratio = [ ( Net profit / Net sales) * 100]

Suppose your net profit for the year 2022 was \$1000 while net sales were \$5000. The profit-to-sales ratio will be = (\$1000/\$5000) *100 = 20%.

That means the profit generated from your sales operations contributes to 20% of your overall profit.

Why does Profit to Sales Ratio matter in Sales?

Profit to Sales Ratio measures the effectiveness of your sales approaches and the efficiency of your sales team. Hence, it is critical to validate your investment in sales operations. By monitoring this metric regularly, sales managers can fix existing gaps in the sales system, identify new lead generation techniques and plan upskilling programs for the sales professionals.

3 Tips to Improve your Profit-to-Sales Ratio

Here are some tried and tested tips to improve your business’ Profit to Sales Ratio:

1. Evaluate your existing approaches and look for gaps

The first step to improve your profit-to-sales ratio is to audit your existing strategies and identify the blockers. Sales managers must take a comprehensive overview of how much they spend on different sales channels, customer acquisition process and cost, retention process and cost, and other factors that can directly affect sales revenue.

Wherever there is unexplained or unnecessary spending, inform the concerned person about it and take action. If required, managers should also set competitive benchmarks for their sales approaches to help the sales team members understand what they are doing wrong and how they can do it instead.

2. Raise price of products, but smartly

Raising your product price is an easy way to increase sales profitability. However, sudden and unplanned increases in price can create a bad impression on the users, and brands may experience a huge churn.

Alternatively, a well-planned pricing strategy that is optimal and matches competitors can help you boost your sales revenue. Also, for B2B SaaS businesses, there is no one-size-fits-all model. Sales managers should conduct an in-depth survey of the current market, match pricing with buyer persona and make a decision on increasing price accordingly.

3. Make customer retention your primary competence

Instead of aggressively acquiring new customers, businesses should focus on retaining the customers.

Acquiring a new customer is 5X more expensive than retaining a new customer.

Customer retention doesn’t take a lot from your operating expenses.

Knowing your existing customers' struggles, addressing their pain points, and making them feel valued is the key to retaining them. With a dedicated customer success team, make sure to handhold the customers throughout their lifecycle. Knowing them well increases your chances of engaging with them for a long time and upselling new products to increase sales profit margins.

Free Resource

Profit to Sales Ratio Calculator

Calculate your company's profit to sales ratio with this Excel/Google Sheet template. Determine the percentage of your sales revenue that turns into profit with our profit to sales ratio calculator, so you can make informed decisions about pricing, cost-cutting, and more.

What is a good profit-to-sales ratio?

A profit-to-sales ratio above 25% is considered good. However, this is a rough estimate and can vary from industry to industry. What brands should rather focus on is how much their profit-to-sales ratio is improving every year compared to last year’s percentage.

What does a 30% profit-to-sales ratio mean?

A 30% profit-to-sales ratio means that out of your overall profit, the profit derived from sales operations is 30%.

Want to Supercharge Your Sales Team?

See how Salesken can provide unparalleled insights into every customer interaction