Calculating marginality has its Pros and Cons of advantages and disadvantages. Let’s start with the advantages:
- transparency. You can calculate the gross margin using a calculator, knowing the amount of revenue and the cost of goods sold for a certain period Pros and Cons of .
- gain insight into pricing. Gross margin whatsapp number list will tell you which products are the most profitable so you can sell them more actively;
- business efficiency assessment. By comparing profitability with competitors’ indicators, you can evaluate the results of work and find new growth points;
- the ability to save data and analyze it further. The marginality percentage can be easily entered into an Excel or Google Sheets table and then used to analyze the company’s work for different periods.
Flaws:
- the indicator does not take into account routine expenses. For the calculation, they use profit and cost of products, but do not take into account the costs of advertising, rent of premises, etc. But they also significantly affect the efficiency of the business;
- wide range. The ideal marginality value depends on the industry, the specifics of the company’s work, and the business processes taking place in it. Since there is no universal coefficient, it is difficult to compare yourself with competitors;
- other KPIs are not taken into account. Gross marginality is an independent indicator, but to get a more accurate picture, other company performance results need to be taken into account.
How to increase marginality
There are several ways to do this.
- Reduce manufacturing costs where possible. Don’t reduce manufacturing costs at the expense of product quality, as this may alienate customers.
- Increase sales. To do this, you need to how to organize financial accounting in a messenger: company cases develop a marketing strategy and improve the work of managers. If the sales volume increases, then the marginality will increase, since the costs will be distributed over a larger number of units of goods.
- Expand the product line, eliminate unprofitable items and otherwise work with the assortment. This will also increase marginality, especially if you sell goods with good profitability more actively.
- Maintain business profits as much as possible. All non-operating expenses must be reduced and costs must be constantly monitored.
Conclusion
Here are the main conclusions:
- The gross margin formula helps calculate the overall profitability of a business as a percentage to assess its efficiency. If a company is operating at a loss, it needs to review production, product range, and development strategy.
- It is impossible to define a universal gross margin indicator. It will differ depending on the company’s field of activity, business processes and products sold. You can use approximate values in the industry as a basis.
- Gross margin does not take into account list of us mobile phone numbers expenses for renting premises, paying taxes, etc. Therefore, to get an accurate picture of the profitability of the business, you need to analyze other KPIs.
Gross margin is therefore a fundamental metric that helps you manage your business more efficiently by identifying the potential for cost reduction and profit increase.
