Gross Margin, Gross Error?

We are presently working with a client who has a successful and established business,

their main gripe is that they don’t see the return they think they should in their bottom line profit.

So What Is Going Wrong?

This type of story is not unusual, many businesses are busy, doing the right things, keeping the customer happy, and even being paid.

But, for whatever reason they are not seeing profits rise, so why?

We see this type of issue as only being resolved through three simple steps –

  1. Increase how much you are selling (volume sales)
  2. Sell it for more money (prices up)
  3. Cut your overheads (costs down)

So which should it be?

Gross Margin Errors

What we found in a recent case was that some variable costs (those costs linked directly to what you sell) are being reported as overheads.

Now, this does not change the bottom line profit, but it does fundamentally change how prices are worked.

Where Gross Margins are wrong you will never really know what you are making on each item you sell, what items are loss leaders and what are cash generators.

In the case we worked on the client was offering discounts to secure sales without any real appreciation of whether this meant the job was profit making, or returning a loss.

What Should You Do?

The simple step is to understand what’s what. Get a grip on margins, understand costs.

This may sound obvious and simplistic, and in many ways it is, however it can also be tricky to properly understand.

The easy option is to bring us in, we will spend a couple of hours with you for free, and when that helps we can start to put changes in place.

Please get in touch via the website, phone us, or leave your comments below. You never know what we could be doing to increase your profits.

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