What would you prefer, 41% gross profit on $1m or 38% on $1.2m?

There is no contest, as you pay the bills with gross profit dollars and not the percentage, 38% on $1.2m generates $456,000 in gross profit compared to $410,000 generated by the higher gross profit margin on lower sales.

In the pursuit of gross profit margin,  you may sometimes lose sight of the fact that pushing too high for gross profit margin can reduce volume.  As it reduces volume, you have less gross profit dollars and therefore less ability to pay expenses and less net profit. At the same time, you may reduce customer traffic by indicating that prices are not competitive.

This is particularly important when you are running promotions. The purpose of a promotion is to increase sales but it is just as important to increase customer traffic. The ability to use smart merchandising to sell customers other products provides the opportunity to manage the mix of margin in sales.

Gross profit percentage however, is a useful tool to ensure that mark ups are adequate and you should always be vigilant in retail business to ensure that there are products that are generating the full margin while remaining competitive in price.