Unlocking Business Success: Your Guide to Mastering Gross Profit Margin

Unlocking Business Success: Your Guide to Mastering Gross Profit Margin

Understanding your financial health is crucial for your business’s success. One metric that stands out among the rest is gross profit margin. While it might sound like complex accountant-speak, grasping the concept of gross profit margin can provide invaluable insights into your business’s performance and profitability. 

Let’s break it down in simple terms.

Why is Gross Profit Margin Important?

Imagine you run a lemonade stand. You sell cups of lemonade for $2 each. Now, if each cup costs you $1 to make (including the lemons, sugar, and cups), you make a profit of $1 per cup. This $1 is your gross profit. Gross profit margin tells you what percentage of your revenue is profit after deducting the costs of making your product.

For businesses, tracking gross profit margin is like keeping score in a game. It helps you understand how efficiently you’re turning your revenue into profit. By monitoring this metric, you can identify areas where you’re spending too much on production or where you might need to adjust your pricing strategy to increase profitability.

Calculating Gross Profit Margin

Calculating your gross profit margin is simple. First, start with your gross profit by subtracting the cost of goods sold (COGS) from your total revenue. The gross profit margin is the gross profit expressed as a percentage of revenue. So, take the gross profit you calculated, divide that by your total revenue, and multiply by 100 to get a percentage.

Here’s the formula:

Gross Profit = Revenue – COGS

Gross Profit Margin = Gross Profit / Revenue x 100

For example, if your lemonade stand earned $200 in revenue and the cost of ingredients and supplies was $80, your gross profit and margin would be: 

Gross Profit = $200 – $80 =$120

Gross Profit Margin = $120 / $200 x 100 = 60%

This means that 60% of your revenue is profit after deducting the costs of making your lemonade.

We look at the margin percentage rather than just the dollar value to compare periods easily, regardless of the sale value.  

Components of Gross Profit

Gross profit consists of two main components: revenue and cost of goods sold (COGS). 

Revenue is the total money earned from selling your product or service. Revenue is calculated as price x quantity.

COGS includes all the direct costs of producing your product, such as materials, labour, and manufacturing overhead.

Increasing Gross Profit Margin

Now, let’s discuss some practical strategies for improving your gross profit margin:

Price Increase

One way to improve gross profit margin is by increasing the price of your product or service. However, we recommend doing this strategically to ensure customers are still willing to pay the higher price.

Increasing Sales Volume

Increasing your sales volume is another way to improve your gross profit margin. This could mean expanding your customer base, introducing new products or services, or implementing marketing strategies to drive more traffic to your business.

Some metrics we look at to measure and track this are:

  • the number of active customers, 
  • client retention rates, 
  • the number of products/services sold 
  • average customer spend 

Cost Reduction

Look for ways to reduce your COGS without sacrificing quality. This could involve negotiating better deals with suppliers, improving efficiency in your production process, or finding alternative, less expensive materials.

Employee productivity plays a big role in an organisation’s efficiency and cost of goods sold. Read more about ways to improve your employee productivity here.  

Product Mix Optimisation

Analyse your product/service mix to identify the most profitable items and focus your efforts on promoting and selling those products. You may find that certain products have higher profit margins than others, allowing you to maximise profitability.

Focusing on these strategies and regularly monitoring your gross profit margin can ensure that your business remains financially healthy and profitable in the long run.

Gross profit margin is a vital metric for businesses of all sizes. By understanding what it is, why it’s essential, and how to calculate it, you can make informed decisions to improve your profitability and drive sustainable growth. So, keep an eye on your gross profit margin and use it as a tool to steer your business towards success.

Smart Savings: How To Cut Costs and Boost Success

Smart Savings: How To Cut Costs and Boost Success

In today’s fast-paced business world, finding ways to reduce expenses while maintaining quality is crucial for long-term success. Cost-cutting strategies can significantly impact your bottom line and allow you to allocate resources more efficiently, ultimately enhancing your business’s success.

Here are some practical and straightforward tips businesses can implement to reduce costs effectively. 

Embrace Technology for Efficient Operations

Investing in the right technology can streamline your business operations and reduce costs in the long run. Look for software and tools that automate repetitive tasks, manage inventory efficiently, and enhance productivity.

Some of our favourite tools include: 

  • Dext for automating accounts payable and saving time with bookkeeping, and it means you don’t have to keep paper.
  • Zapier for integrating software that doesn’t otherwise talk to each other, for example, adding new people to your email list when a lead is generated.  
  • Office suite – we are MS Office users here, but you can achieve the same with Google. Having a calendar that is shareable and accessible from all devices, being able to chat with the team and storing all documents in one place are standard features and big time savers.

Negotiate with Suppliers for Better Deals

Developing solid relationships with your suppliers is crucial. Regularly review your agreements and negotiate for better terms, discounts, or bulk purchase deals. This helps reduce costs and fosters collaborative partnerships that benefit both parties in the long term.

If your suppliers will not come to the party, shop around.  

We recently worked with a client to shop around on a particular subset of their materials, resulting in a 35% saving!  

We also recommend doing a supplier due diligence. If you rely on a particular supplier, you must ensure (as best as possible) that they will be around for the long term.  

Optimise Energy Consumption

Energy bills can be a significant expense for businesses. Implement energy-saving practices such as turning off lights and equipment when not in use, investing in energy-efficient appliances, and considering renewable energy sources. This not only reduces costs but also demonstrates your commitment to sustainability.

Another consideration is the time of day you use appliances. For example, using off-peak times to charge batteries and run machinery. This, however, must be practical and not cause any issues with production or productivity.  

We recommend implementing this in addition to other sustainable initiatives like being a paperless office and recycling where possible.  

Check out one of our early blogs here about why you should care about being a sustainable business.

Review Telco Invoices

Telcos have been notorious for lock-in contracts and constantly changing plan inclusions. Scrutinise your phone and internet bills, ensuring that you are on the best deal for your business needs. Telecom providers regularly update their plans, and by staying vigilant, you can identify opportunities to optimise your services while reducing expenses. 

While negotiating with your provider for better rates might be impossible, explore bundled services and consider alternative providers offering more competitive packages. 

GAP founder Susan has previously worked in the telco industry and can attest that mobile plans (in particular) must be reviewed regularly. Ask yourself, do you really need that data inclusion when you have wifi at work and home? A $10 monthly saving per plan soon adds up! 

Invest in Training and Development for Employees

Investing in the training and development of your existing workforce can lead to increased efficiency and productivity, ultimately reducing costs. Well-trained employees are better equipped to handle tasks with accuracy and speed, minimising errors and the need for rework. This strategy can also contribute to employee satisfaction and retention.

If any of your staff need some extra training with any finance-related tasks, please reach out. We offer personalised and tailored training sessions.

Conduct Regular Financial Audits

Regularly auditing your finances helps identify areas where you can cut costs and improve financial efficiency. Track your expenses, review your budgets, and eliminate unnecessary expenditures. This proactive approach ensures that you stay on top of your financial health and can make informed decisions to enhance your business’s success. 

Adopting smart cost-cutting strategies is essential for success in the business landscape. By embracing some of these tips, your business can thrive and be more financially sustainable. Remember, it’s not about cutting corners, but about making informed decisions that contribute to the long-term success of your business.

The Magic of Delegation: How an OBM Can Be Your Business’s Secret Weapon

The Magic of Delegation: How an OBM Can Be Your Business’s Secret Weapon

This guest blog is bought to us by Meredith Nowlan from The Regional OBM.

Are you ready to take your business to the next level and know that you need a hand to do it? Perhaps you’ve just signed up with a business coach or a virtual CFO and they’ve given you an action list that’s as overwhelming as it is invigorating. Well, I’ve got some great news for you. I’m going to dive into the wonderful world of Online Business Managers (OBMs) and how having one can positively impact your business. So grab a cup of coffee, sit back, and let’s explore how an OBM can work wonders for your business.

Streamlined Operations and Processes

Picture this: you’re running your business and it’s gaining momentum. It’s freaking amazing, but sometimes the day-to-day operations can get a little stressful/time-consuming/all-encompassing (insert your own experience here!). 

Enter the OBM, your wing woman in business. These magical beings specialise in optimising and streamlining your business operations and processes. From creating efficient workflows to implementing systems that make your life easier, an OBM will have your business running like a well-oiled machine.

Strategic Planning and Goal Setting

Remember the coach or new CFO I mentioned earlier? They’ve clued into the fact that you’ve got big dreams and even bigger goals. Sometimes, it can be challenging to turn those dreams into reality, even with the awesome assistance they’re giving you. That’s where an OBM comes in. Share your goals with her and every plan that she makes will help you navigate towards the desired end result. Your regular catch up’s will turn into brainstorming sessions on the best way forward – and she’ll love it just as much as you do.

Delegating and Managing Teams

As a small business owner, you wear many hats. And there are days where trying to juggle all the tasks can leave you feeling like a one-person circus act. So don’t let fear hold you back! An OBM is here to protect your sanity. They’re masters at delegating and managing teams. They’ll help you build a dream team of talented individuals and ensure everyone has the tools they need to work seamlessly. This particular OBM is not afraid to employ tech stacks where necessary – automagic is just a few key strokes away! With an OBM on your side, you can focus on what you love and let them handle the rest.

My tip – a project management system such as Trello, ClickUp and Asana can really make an impact on getting started with the first 3 topics!

Enhanced Customer Experience and Satisfaction

Having a kickass customer journey and customer service can be the difference between you and your competition. Happy customers mean repeat business and positive word-of-mouth, and that’s pure gold. This process should be a well-oil machine that cranks every single time – no matter which team member picks up the order or how many after-school activities you are actively ubering this week. An OBM can work with you to implement customer-centric strategies and processes that will leave your customers smiling from ear to ear.

Dubsado is the client relationship management system I utilise inside my own business and recommend most to my clients! 

Time and Stress Management

I get it. Running a business can feel like a never-ending rollercoaster ride, especially when you throw in family and community responsibilities (or just trying to get to the pub for dinner on Friday night to remind friends you still live). It’s exhilarating, but it can also be exhausting. An OBM is like your personal time and stress management guru. They’ll help you reclaim your precious time and alleviate stress by handling operational tasks. So take a deep breath, relax, and enjoy a better work-life balance. You deserve it!

When an OBM is not for you

If you aren’t ready to implement change, hand over partial control of the reins or really don’t want suggestions on how to improve your systems, communication and automations… then what I’d suggest is looking into a Virtual Assistant (VA). VA’s are more than happy to follow a set checklist to help you manage the day-to-day. Whilst many of them are happy to think outside the box, they understand that it’s not what they’re here for and will gladly follow your lead. There’s nothing wrong with being at this stage – so long as you aren’t sitting stagnant out of fear of what could come next!

How to start with an OBM

If you are wondering how to start with an OBM, the first step is booking a discovery call! In this first session, we’ll chat about what’s going well in your business and where you are struggling with keeping up, maintaining control and what systems need a good tightening. Understanding what systems and software you’ve in place already gives me a great idea of where you need to head next to achieve the vision you have for your business. 

An OBM is a game-changer, offering streamlined operations, strategic planning, team management, automation wizardry, enhanced customer experiences, and stress relief. So why wait? Embrace the benefits bringing on OBM onboard will bring – you won’t look back! 

About Meredith

Meredith Nowlan is a Systems Strategist and Online Business Manager with extensive experience in the logistics, mining and transport industries. She’s worked in almost every role an office could have and considers herself the ultimate wing woman in the business world. From kickstarting your Dubsado setup to creating streamlined systems and automations across various apps, Meredith has your back when it comes to sprinkling auto-magic over your business. Based in FNQ, Meredith works remotely with business owners from all around Australia (some from their caravans!) to ensure their businesses run like a well-oiled, efficient machine that frees up your time and skyrockets your success.

Book a discovery call with Meredith Nowlan from The Regional OBM, or connect with her on LinkedIn.

Follow The Regional OBM on Instagram and Facebook for more helpful tips.

Christmas is coming – is your business ready?

Christmas is coming – is your business ready?

Don’t shoot the messenger but in case you haven’t realised, Christmas is coming! And fast!

The lead-up to Christmas can often seem like a blur between all the parties and gatherings, shopping, and the excitement (or relief) of having some time off.  Regardless, if you are sliding into Christmas or still ramping up, there are a few things you need to consider to ensure your business is ready.  

Christmas Shutdown

If you are shutting down over the Christmas period for a well-deserved break, you must provide your staff with notice.  If an award covers them, you’ll need to check that for the amount of notice you need to provide and any other stipulations. 

Now is also a great time to review your staff leave balances. If they don’t have enough hours accrued, they may need to take either leave without pay. Alternatively, you may be kind enough to let them go a few hours into the negative. I recommend that you consider this on a case-by-case basis with their employment contract (and award) in mind. 

You also need to make sure you communicate your closure with your customers. Set a reminder now to make sure you activate your out of office on emails and adjust your phone recording message. 

You may also wish to consider (depending on your business/industry) providing your customers with a referral point if they run into issues over your closure. It might seem counterintuitive to refer a customer to someone who is normally a competitor, but it does provide your customer with first-rate service. Also, reach out to the person you will be referring. Maybe you can arrange a commission or referral fee? Or come up with an alternative arrangement that suits you both. Remember they may be in your position soon. 

Supplier Shutdowns

If your business has a reliance on certain suppliers, you may also need to consider when they are shutting down.  Many suppliers (particularly trade suppliers) often have an extended break over Christmas and into the new year.  While that is great for them, you need to ensure you have sufficient supplies to see you through this time.  

Work in Progress

Now is the time to review your work in progress list to see what jobs you can complete and invoice prior to Christmas.  The earlier you can invoice the better chance you will receive payment.  

Work in January

It is still only November and I am already spruiking organising work for January now!  January usually seems to be a bit of a slow start (at least until Australia Day/school returns) so doing the hard yards now ensures you have work. We also recommend taking a deposit (if you are able to) for January work so you run the risk of jobs being pushed as a result of holiday budgets being stretched.  

Firming up that job list early, also means you can make sure you have the supplies to carry out the work and avoid delays. 

If you have any questions about staff leave or even about getting your business Christmas ready, book a discovery call today.