In today’s economic climate a business cannot simply sell its way out of a profit problem. The economy has caused demand to decline and competition is responding by cutting prices in an effort to increase their sales. Unfortunately, excessive price cutting can be disastrous to everyone’s profits.
Improving gross margins is a powerful method to improve profits. Holt Marketing & Management Services has developed a Gross Margin Matrix that offers a proactive systems approach to achieving that goal. To illustrate, a $1,000,000 operation that can increase its gross margin rate by 3% will add $30,000 to their gross margins and a $20,000,000 company will add $600,000 to their gross margins.
The Gross Margin Matrix, created by Holt, incorporates key indicators that impact gross margins into a systemized profit improvement plan.
Five key indicators that drive gross margins:
- Customer
- Product/Project Mix
- Pricing Policy
- Sales Strategy
- Advertising & Merchandising
Each of these key indicators of gross profit must have goals, measurements, and training to implement behind it.
A gross margin planning system is a sustainable process that has synergy, meaning that utilizing all the components and produce results that are greater than the sum of their parts. The objective of the sample gross margin matrix is to increase gross margin goals by 5% to 10%.
The overall steps to complete the gross margin matrix are:
- Plot all categories, products, and projects which have high gross margin dollars or high margin percentages.
- Develop a sales system that focuses on increasing sales of what is listed in Step 1.
- Identify areas where prices can be increased without losing sales. (See our blog: Help Your Customer Cut Costs and Increase Your Profits)
- Redesign marketing and sales to attract customers to these services or products.
Example:
| Current | New Matrix Change Results | |
| $1,000,000 | Sales | $1,000,000 |
| 40% | Gross Margin % which is +7.5%* | 43% |
| $400,000 | Gross Margin $ | $430,000 |
| $370,000 |
37% Overhead | $370,000 |
| $30,000 | Profit | $60,000 |
*($430,000 / $400,000 = $30,000 or 7.5% increase in gross profit)
And by following the strategy laid out in the Matrix guide and video to harness its synergy for growth, business managers or owners have the knowledge at their fingertips to go forward and increase their profits.
If you have further questions or would like to have someone from Holt Marketing Services walk you through the Gross Margin Matrix guide, then give us a call at 989.791.2475 or contact us. There is no obligation or charge.
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You can also check out our other blogs on how to increase gross margins or gross profits here:
The Definitive Guide to Increasing Your Gross Margins
Find your Synergy Factor in Finance and Increase Profits Dramatically
The Gross Margin Matrix – Avoiding System Failure
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*Editor’s Note: This is a previously published blog. Due to the popularity and importance of the content, I felt it was necessary to recirculate for those who missed it.
