Mind Your Margins!
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Mind Your Margins!
Gross profit is more important than sales.
Most business owners can tell you how this year’s sales numbers compare to last year’s numbers. Naturally, everybody wants their sales numbers to go up; however, an increase in sales does not necessarily translate into an increase in profit. What you need to be looking at even more closely than your sales numbers are your margins.
Your gross margin is simply the amount of money left over from a job after you collect your fee, then subtract your costs for that job. For example, let’s say you are a caterer. You charge $3,600 to cater a wedding. If your costs for transportation, food, accessories, and staffing are $1,800, that leaves you with a gross margin of $1,800 or 50%.
Let’s say you do a similar job next year and charge $3,600 again. Suppose your labor costs go up and so do your accessories and food costs. In fact, your costs for next year’s job are now $2,100. Your gross margin is now $1,500 or 41.67%. You have now lost $300 on the same-sized job you did this year.
If you are watching your margins, you’ll know when it’s time to raise your prices. Your margins should never slip. If anything they should be going up. I’m challenging you to track your gross margins as carefully as you track your sales numbers. When you see your margins are consistently dropping on the same sales numbers, it is a sure sign your business is in serious trouble.
You’ll need to be bold and stay ahead of inflation, or any other factors, that are causing your margins to drop. Don’t wait until it’s too late to save your business. Owning a business is not for the faint of heart. However, if you have the courage to believe in the integrity of your gross margins, you will be around in business a lot longer than most of your competition.
Business can survive longer with no business than with unprofitable business.- Larry Steinmetz
I encourage you to check out my Overcoming Price Objections video program which also covers this lesson in greater detail.