BUSINESS COACH
Before: This calculation shows a standard product mix resulting in a 44.6-percent Gross Margin.
Let’s talk about something that is fun. Here’s profit-boosting strategy #3 — the easiest and most effective way I know to improve profitability…
3. INCREASE GROSS MARGINS
Gross Profit (GP) is the No. 1 most important number in your business. Nothing will do more to improve your profitability than increasing your Gross Profit. • You can increase GP by selling more, at the same margin. Or… • You can increase GP by selling the same, or even less, at a higher margin. GP is measured in dollars. Gross Margin — GM — measures GP as a percentage of sales. The distinction is important. A $600 display at 20% GM delivers $120 GP. That’s the same GP as a $300 head unit at 40% GM. Or $200 worth of high-end speaker wire and cables at 60% GM.
Optimizing Gross Profit is all about delivering the right mix of low vs. high GM prod- ucts. It is best illustrated by something I call the Mix|Margin Matrix.
THE MIX|MARGIN MATRIX Each of the products you sell likely fall into one of three GM Categories… Low GM — 20% or less Good GM — 21% to 40% High GM — over 40% A fourth category, Labor, is unique. In the Top-Line Management System (TLM)*, labor services are included in total sales at a 100% GM; pure GP
. Companies operat-
ing under TLM strive to get as much labor billed as they possibly can. But there’s GP in the boxes, too — the real key is managing your sales mix to in- clude a good percentage of each of these categories. Here’s how the Mix|Margin Matrix might look for a 12V retailer… While a 44.6% top-line GM might sound good, the objective is to make it better. The chart above illuminates several potential improvement strategies. This business owner could: • Increase labor mix. The TLM method is to measure labor as a % of the job total. Increasing mix thus means charging more for labor, relative to the cost of the gear. You might have to bump your established flat rates, and/or your hourly rate. If you
After: By increasing sales of accessories and installation parts, labor and higher-end speakers, the GP and GM go up even with a drop in core component sales.
44 Mobile Electronics December | January 2012
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68