Sure you do. The accumulation of costs you incur in maintaining inventory is called the inventory carrying cost. The opportunity cost of the money invested in inventory. That is, how much could you make if the money tied up in inventory was invested in a relatively safe, income-producing investment. Unfortunately the cost of carrying inventory is not considered in calculating gross margin.
Gross margin is calculated by dividing gross profit dollars by sales dollars.
The adjusted gross margin percentage comes closer to measuring the true profitability of a product, product line, branch inventory, or the entire company. The product lines aren t equally profitable. Many product lines, especially those that call for a tremendous inventory of repair parts, require a substantial investment in inventory. This investment must be considered when you establish your selling prices and the profit you must receive from each sale. Get your employees in the habit of talking about a product line s adjusted margin rather than its gross margin.