“I’m not good with numbers she said. I’ve never been confident with them. But, I know that to be able to talk to C-Suite and senior decision makers I need to understand their numbers and how and what they measure”.
Ronan “so do you know how to calculate gross margin”?
“No, I have never been good at maths.”
Ronan “ok but do you understand the importance of generating profits and how your customers and prospects are measured”?
“Not really. I know profit is important, but not how you calculate it”.
Ronan “ok and what about your profit margins”? Do you know how your prices are calculated”?
“Not really. We have a spreadsheet, and I work from it, but I want to understand the detail. It is just something way out of my comfort zone.
Ronan “let me show you how simple it is for you to master gross margin. You will with a little practice become an expert. And you will understand just how important it is to your customers too”.
The Margin Cake
I want you to imagine that you have a product you usually sell for €10 (ex VAT). However, on this occasion, you received a chocolate cake worth €10 instead (you have a terrible sweet tooth).
You are looking forward to indulging yourself but unfortunately, you can’t.
You have to pay your suppliers who provided the flour, eggs, milk etc.
In this scenario, 80% of your cake is eaten by your suppliers, and they want it now!.
OK, so you are looking forward to the remaining 20% (It is your Gross Margin).
So 80% of your cake is eaten up by manufacturing costs. And 20% is left for you to eat.
But, you still have to pay for your heat, light, time (you will be paying for your labour), packaging costs, distribution costs etc.
So your slice of cake gets much smaller very quickly as parts of your business have their appetites satisfied.
You end up with a tiny slice (typically between 2% and 10% for most businesses).
So business is tough because you get so little cake to actually enjoy. And you need to keep some of your cake in order to save for rainy days and emergencies (like broken ovens).
It is the reason your customers and decision makers focus so much on their margins and costs. Profit is hard to generate and even harder to keep because everyone wants a slice of your cake.
Now imagine a scenario where you can offer a service or a product to your customer that enables them to keep more of that cake for themselves. You help them lower their costs or increase their prices. Wouldn’t that be a tempting treat for any buyer?
When you think margin. Think chocolate cake (it is much nicer). How much cake do you need to sustain your business? And how much do your customers need in order to sustain and grow theirs?
Tomorrow I’ll show you a really quick way to calculate your gross margins.
Regards Ronan
Ronan is the “Sales Infrastructure Guy”.
Helping high growth tech companies build world-class sales systems and processes that scale.
Call me on +353(86) 7732201
Ronan Kilroy | Insthinktive Sales Leadership Ltd. | Blanchardstown, | Dublin 15, | Office 01 8220523
More Sales, More Consistently, In Less Time
