Is Your Gross Margin Healthy?

“Business is a game of margin, not volume.”

That’s a quote from the fantastic book titled How to Sell at Margins Higher Than Your Competitors, by Lawrence L Steinmetz and William T. Brooks.

It is almost impossible to have a healthy business if you don’t have a healthy gross margin. (Gross margin is your gross profit divided by sales.)

The price you charge to customers is one of the most important drivers of gross margin (and therefore your overall profitability and cash flow). You must constantly evaluate the value you deliver to customers, your obligation to generate a healthy profit in your business, and the price you charge customers.

Have You Raised Your Prices Recently?

Warren Buffett said this about the ability of a business to raise prices, "If you've got the power to raise prices without losing business to a competitor, you've got a very good business. And if you have to have a prayer session before raising the price by a tenth of a cent, then you've got a lousy business."

That might be a little harsh! But true.

It is difficult to improve your profitability and cash flow if you are not raising your prices on a regular basis.

There’s no magic bullet here. Just careful consideration of the many factors that go into your company’s value proposition and your pricing strategy… and ultimately the financial health of your business.

Look back at your company’s gross margin over the last few years and see whether it is growing or shrinking.

Then seriously consider raising your prices… and improving your gross margin.

On a related note, are you happy with the financial health of your business right now?

 

NOTE: You can grab a copy of my newest book at Amazon.

A Quick Start Guide to Financial Forecasting: Discover the Secret to Driving Growth, Profitability, and Cash Flow Higher provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. It will transform the financial future of your company and help you make better business decisions. Get the book at Amazon.