Gross Profit – One of The Most Important Keys in Business.
So, I have this client who says he is keen on improving the gross profit in his business, because he has someone who wants to buy his business on a multiple of gross profit.
I am thinking to myself – “what you probably mean is net profit”, but I keep my thoughts to myself.
After a brief discussion, I realize that he doesn’t know what gross profit is. And there begins the journey. Suffice to say, he now get’s it, well and truly.
Earlier on, I wrote an article about understanding the numbers (ratios) in business and I firmly believe that this is one of the most critical areas of business.
Today, we are going to do a little exercise. Not for you, but for your clients. Because you already understand ratios.
Try asking your clients this question:
“If you buy something from a supplier for one dollar and sell it to your customer for two dollars, what is your percentage gross profit?”
You’ll be amazed at the replies from folks who have been in business for years.
Once they are helped by you to understand that specific key in business, it is amazing how the bottom line will improve.
In the next segment, we are going to discuss how decreasing turnover can lead to a more profitable business.