Watch Your GPM Before You Are SOL

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- by Todd Jensen

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Are you feeling the pinch?

Have your costs been creeping up on you, shrinking your
already tight profit margin?

If you watch only one number religiously in your business,
make sure it’s your gross profit margin. Remember that
one? Your gross profit margin is your sales revenue minus
the cost of your goods or services sold. The easy way to
watch this is to keep track of your gross profit percentage
-this figure is easily accessed in QuickBooks by selecting
(% of income) in your profit and loss report settings.

You and I both know that prices have been jumping through
the roof lately. What happens to your gross profit margin
if your costs go way up, and you keep your pricing the same?
That’s right. Your profit margin shrinks, and you end up working
harder and harder to make the same bottom line profit.

I know this seems pretty obvious, but I had a client recently
learn this the hard way. They were launching a new product,
and set the sales price a couple of months before launch. In
the flurry of getting the product to market, they didn’t notice
that their cost of one of the key components had gone up 28%
since they set their pricing, not to mention the smaller increases
on the rest of the components.

Long story short, they ended up launching the product at the
original price point, and couldn’t understand why the new line
wasn’t profitable. Their industry was not used to price
fluctuations of this magnitude, and this error almost cost them
their business.

Rising fuel prices impact all businesses, and you must keep on top
of your current costs if you want your business to be profitable.
Moving stuff from place to place costs more now, and higher fuel
costs carry through to everything you buy. Even service
businesses are impacted, although the less “stuff” you purchase
or things you move from place to place the lower the impact on
your particular business.

Bottom line: You must watch your costs constantly when prices
are rising like they are right now. Watch your gross profit margin
percentage on a regular basis-daily if possible-to make sure you
are not priced out of business!

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Todd Jensen, “The Profit Engineer”, has helped hundreds
of business owners make their business more successful
and profitable. For tips and strategies on how to
boost your business success as well as increase your
profits, visit
http://www.theprofitengineer.com or
http://www.freebusinessstartupinfo.com
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