To calculate LTGP (Lifetime Gross Profit), you subtract the cost of goods sold from revenue.
Essentially, the formula is:
LTGP = Revenue - Cost of Goods Sold (COGS)
This calculation provides insight into the total profit a business makes from its products or services over a specific period (lifetime or other defined timeframe), before considering operating expenses, interest, and taxes.
Example
To illustrate how to calculate LTGP, consider the following example:
| Item | Amount |
|---|---|
| Total Revenue | $1,000,000 |
| Cost of Goods Sold (COGS) | $600,000 |
Using the formula:
LTGP = $1,000,000 (Revenue) - $600,000 (COGS)
LTGP = $400,000
Therefore, the Lifetime Gross Profit (LTGP) in this example is $400,000.
Importance of LTGP
Understanding the LTGP is crucial for:
- Profitability Analysis: It helps in evaluating the profitability of products/services.
- Pricing Strategies: Informs pricing decisions to maximize gross profit.
- Financial Planning: It aids in forecasting future profitability.
- Performance Measurement: Allows businesses to track performance over time.
