Profit or loss is determined by subtracting overhead costs from gross profit. Instead of calculating gross margin for each enterprise, let's calculate a gross margin for the total business and express it in terms of profit per dollar of gross income generated. The fifth article in this series went into detail on this per-dollar analysis. Overhead costs on the study farm consisted of depreciation and family living draw as a proxy for labor and management wage. In planning for today's markets and beyond, I strongly encourage you to calculate what your gross margin is for each dollar of gross income generated on your farm or ranch.
Turnover is a term being used to measure the size of the farm business.
The higher the turnover, the larger the business. Now for the decision-making process. The key to Dave Pratt's technique for increasing profit is to study the accompanying illustration. Starting on the left-hand side, profit is calculated by subtracting overhead from gross margin. Gross margin is calculated by subtracting direct costs form gross income.