ChApter 6 | YOUR PROFIT AND LOSS FORECAST | 105
Annual Average Cost of Sales Chart:
Antoinette’s Dress ShopitemForecast
Sales
RevenueCost
per
Sale*Total
Cost of
Sales
Dresses $ 200,000 50.4% $ 100,800
Accessories &
Sale Items 200,000 73.3% 146,600
TOTAL $ 400,000 $ 247,400Total Average Cost of Sales = 61.8%
($247,400 ÷ $400,000)
*These percentages come from Chapter 3,
where she calculated gross profit. To get
cost of sales percentage, simply subtract
gross profit percentage from 100%. The
remainder is cost of sales.Here’s how Antoinette completed this
chart. First, she estimated how much
sales revenue for each of the product
categories the shop would receive in the
first year; that enabled her to complete
the first column of the chart.
Next, she obtained her cost of
sales percentage by using the figure
she developed in Chapter 3. She then
multiplied the sales revenue for each
product category by the cost of sales
percentage for that category; that
enabled her to complete the total cost of
sales column of the chart.
The average total cost of sales
figure (61.8% in Antoinette’s example)
is not an average of the cost per salepercentages. Instead, it is weighted
according to the amount of expected
sales revenue and is derived by dividing
the total cost of sales by the expected
sales revenue ($247,400 ÷ $400,000).
An average cost of sales of 60% is
reasonable for many profitable retailers.
Even though it is wise to be a little
conservative, Antoinette uses 60%
as her cost of sales when forecasting
profits.
You can use the procedure in the
example above to estimate your average
cost of sales if you’re in the retail,
manufacturing, or wholesale businesses.
Simply modify the item categories to fit
your business. For example, a restaurant
would have categories for food, non-
alcoholic drinks, liquor, beer/wine,
and possibly take-out orders. Another
example, for a bar and restaurant, is
shown below.Annual Average Cost of Sales Chart:
Bar and RestaurantitemForecast
Sales
RevenueCost
per
SaleTotal
Cost of
Sales
Food $ 300,000 38% $ 114,000
Liquor 60,000 29% 17,400
Beer/Wine 40,000 75% 30,000
TOTAL $ 400,000 $ 161,400Total Average Cost of Sales = 40%
($161,400 ÷ $400,000)