This is my personal favorite. I love studying gross margin. I want to know what your competitor’s gross margin is. I want to know why the margins are better in industries other than yours. I want to know how come some companies have gross margins over 50%. (I came out of manufacturing, so that looks like nirvana to me). If you are at 50%, how do you get to 60%?
BTW, gross margin is the percentage you make after the cost of purchases like materials you use to make your product and labor, or in a service business salaries directly used to provide the service. That excludes sales expenses, rent, administrative expenses, insurance, etc.Those are expenses that don’t vary by volume. Your rent is your rent unless you move.
Oh, did I mention that I love percentages? Raw numbers work in some magic way for the really accomplished at running numbers. For most of us, percentages tell the real story.
Find out what your competitors are grossing. How? Ask your bank, your vendors, industry organizations, service providers like IT vendors. They might be able to give you industry averages. If you aren’t better than your competitors, why not? What assumptions are you making about how to do business that your competitors aren’t assuming. You might not choose to do what they are doing, but you should know what you are competing against.
Take apart what goes into costs of goods or services with your team. Challenge the whole company to improve. Set a goal-maybe +1%. Reward them for improving by 1%. Focus on improving by 1%. If you suspect you can improve 2%, set that goal. Recognize those who contribute, make it a game. Make it fun. You will all win big in the process.
Next-sales expense.