Chapter 2 – Financial Control – Rule your money
This is part of the ‘How to’ coaching series. An ongoing series of activities to make your business successful. Follow it step by step and see positive results as you develop a robust business model, set on a solid foundation.
Activity 31 – I know what Margin is and have set up Minimum Margin Goals
Before I started my own businesses, I used to think it meant, the bit on the side of the page where the teacher wrote remarks on my spelling or sums… turns out there’s a business meaning too.
In business terms, Margin, is the difference between the seller’s costs for acquiring the items and the selling price.
The term Margin has a slightly different meaning in financial accounting and investing. We will focus on the sales margin in commerce.
Although it will vary considerably by industry, a margin of 25% would usually be seen as a good amount, 10% average and 5% low. These numbers are just an indicator. You need to look at your industry for a more typical example of the expected margin percentages.
The ‘How to’ bit:
Divide gross profit by revenue. To make the margin a percentage, multiply the result by 100. If your Margin is 25%, your business gets to keep 25% of the total revenue; Gross!
Set your minimum margin targets and record the actuals against the plan to see how well you are doing. The resulting records, over time, will give you a trend of what is happening. This can then be analyseddeeper to see why you hit, missed or exceeded target.
The actuals can drive your future pricing to make sure you are making a healthy gross profit. Remember, Margin, or Gross Margin as it is sometimes known, does not include the costs of overheads.
If you would like to find out how to work out and set your target margins, Contact Us…