Where money is actually made.
WHAT TO CALCULATE PER ITEM
Revenue Direct cost Gross profit Gross margin percentage Volume sold
WHAT THAT REVEALS
Items with high revenue and poor margin Items with small revenue and excellent margin Items that lose money
THAT LAST CATEGORY
Almost every business has one, and rarely knows which.
WHAT TO INCLUDE IN COST
Materials Direct labour, at a realistic rate Delivery Anything attributable
WHAT TO ALLOCATE CAREFULLY
Overheads.
Allocate by a sensible basis, and be consistent.
WHAT TO RANK BY
Total gross profit, not revenue and not margin alone.
WHY
A high-margin item selling rarely contributes little.
WHAT TO DO WITH FINDINGS
Promote what contributes most Reprice or discontinue what loses money Investigate why margins differ
WHAT TO REVIEW
Annually, and when costs change.
