How to Figure a Profit Margin With Sales & Rent Revenue
Sales revenue includes all payments given in return for products or services. Rent revenue consists of money paid regularly by renters according to a real-estate lease agreement. Entrepreneurs in the real-estate industry can earn income through both types of revenue if they sell and lease properties. If your business combines sales and rent income, it can be useful to calculate the total profit margin of the business by combining the income and expenses from both business units.
Select a time period to analyze, whether it's a month, quarter, year or any other meaningful period. Calculate your total sales revenue for the period. This can include major sales, such as a house or commercial building, as well as smaller sales, such as building renovation services or heating infrastructure. Disregard accounts receivable and include only cash payments that have been received.
Add up all of the revenue earned from rental agreements in the same period you used for your sales revenue calculation. Include all late fees, new deposits and cash payments made during the period. Disregard all accounts receivable that you may have included as rent revenue in your accounting system.
Calculate your total expenses for the period, including all costs directly associated with earning sales and rent revenue. For sales, include the cost of goods sold, direct labor and any transport costs specifically associated with selling activities. For rent, include mortgage payments, homeowners association fees, building inspection costs and any other incidental costs associated with the upkeep of rental properties during the period. Add all remaining company expenses, including overhead, taxes, license fees, indirect labor, depreciation and debt payments to determine your total combined expenses.
Subtract your total combined expenses from your total combined revenue to determine your net income, or net profit. With the net income figure in hand, use the following formula to calculate your total profit margin:
Profit Margin = Net Income / Revenue
If you would like to analyze the net profitability of each of your business units separately, use each segment's revenue and expenses to calculate its own net profit and profit margin.