Your gross profit margin is what remains from your total sales after deducting variable costs. Understanding and optimizing this metric is key to strengthening your cash flow and building a more resilient business.
A Simple Example
Imagine you’re a retailer:
- Sales for a given period: $1,000,000
- Cost of goods sold: $650,000
- Gross profit margin: 35% ($350,000)
If you improve your margin from 35% to 39%, your gross profit increases to $390,000—an extra $40,000. Even if this requires a slight increase in overheads, the boost to your cash flow can make it a worthwhile investment.
Strategies to Lift Your Margins
The right strategies depend on your industry.
For Retailers:
- Reduce stock shrinkage and theft.
- Avoid unnecessary discounting.
- Minimize obsolete stock to free up working capital.
For Contractors:
- Address rework and material wastage.
- Ensure all work and materials are billed correctly.
- Boost team productivity to maximize efficiency.
Let’s Improve Your Margins Together
We can help identify the best strategies for your business and run your figures through our Cashflow & Profit Improvement Calculator to show the impact of seemingly small changes.
Don’t let poor margins drain your cash flow and working capital. Contact us to create a plan that works—and puts more cash in your bank account.