Selling Costs to Sales Ratio

Category: Sales.

When calculating the selling costs to sales ratio, this is the job for the sales manager actually. Getting the calculation right will show you exactly how much revenue your company receives after selling its products. The sales manager will calculate this ratio once a month in most cases. This ratio also shows if a company is in a good financial state or not.

Getting the calculation right is the first step in doing so – so let’s take a look below and see how the sales manager deals with the ratio.

Selling Costs to Sales Ratio Calculation

By dividing the costs of selling to the total value of sales – and then multiplying the result by 100, you will get the ratio you were looking for. So, the formula should look like this: (Cost of selling / Total value of sales) x 100. Keeping it simple and basic is the right way to go.

Also, getting the exact result is dependent on having the exact numbers – so be sure to gather all the details before you engage into calculation the selling costs to sales ratio. After getting the result, you must be able to interpret it.

Interpreting the Result

First of all, you will need to know that getting a good result is by having exact numbers to work with. Be sure that the sales manager calculates this ratio for each and every product. Gathering all the products together will give you a number, of course – and it’s a correct number. However, to see how every department managed to produce and sell the products, you must take them one by one.

After you’ve divided all the sales and got the results, you need to know what these ratios mean. A lower ratio means higher profit. So, the key to getting the customer is to buy the expensive products which have a lower ratio. This strategy will boost your profit for sure. Also, you will need to think that the selling costs do not imply only shipping the goods to the customer. These costs include the product’s development, marketing, distribution – basically, every dollar that you spent on getting the product to the door of the customer. All of this is considered to be a selling cost.

A higher ratio, on the other hand, means exactly the opposite. In fact, a higher ratio means that a company is in debt from the selling costs – and the selling costs need to be lowered somehow. Two companies could have the same ratio – but with a different debt, regardless of the field they are active in. So, comparing a company’s debt ratio with your company could give you some insight into what you’re doing right or wrong.
To conclude the above information, the selling costs to sales ratio is pretty important – particularly if you think you’re doing wrong in the sales department. Keeping a close eye on your sales manager will be a key to success and will ensure that you have the right numbers to work with.

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