Do you know your margins?
The very important Gross Profit Margin = (Net Sales – Cost of Goods Sold)/ Net Sales
Cash is the lifeblood of a business. It needs to be worried about.
You should know your margins and a good set of management accounts will yield all the ratios you need to manage the business.
We use five calculations when we look at your financial accounts:
- The ratio of Staff Costs to Turnover
- The ratio of Turnover to Staff Numbers
- The averaged Staff Cost per Employee
- The Turnover per Employee
- Post Tax Profit per Employee
These are crude calculations as we only have access to your published Year End Accounts.
However, viewed over a few years, falling margins stand out, with an indication of possible reasons. Together with the Directors’ comments in the Year End Accounts, they paint a rough picture.
There are different ways to improve your Gross Profit Margin (GPM).
Our area of business is people and the leadership and management skills that produce greater employee engagement, productivity, and overall performance.
It is my contention that many, if not most, organisations in the UK employ too many people. I have observed this overstaffing in China, in EU countries and in the US.
I rate the average UK performance as 60%. Averages do, of course, conceal a wide variation.
Some organisations’ performance is as low as 30%!
How has this happened?
Some organisations look around and compare themselves to similar organisations. This ensures any “we’re not so bad” thoughts are reinforced.
Staff may be seen as a commodity. When you purchase your electricity, you are concerned about the unit price and the reliability of delivery.
Managing people for the maximum work for the least pay as a commercial commodity, leads to people responding in kind: they will do as little as possible for as much as possible.
People do not respond well to being treated as a commodity, as a cog in a machine.
Your organisation needs managers and leaders with the necessary soft skills to build relationships with their people.
The culture of the organisation needs to be people-relationship centred.
Our Acid Test is, ‘if we could add 10% of your Wage and Salary figure to your pre-tax Operating Profit, would that be of interest?’
That’s not a guarantee! Just an indication that a conversation would be worthwhile.
Margins not so boring now then?
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