Day 4

Outperform rivals on margin!

 

Gross profit margin is usually expressed as a percentage – so if it costs £40 to buy something and you sell it for £100, your gross profit is £60 and your gross margin is 60%; only two things affect gross margin – how much you sell your product or service for and how much it costs you to deliver that product or service to the market.

If you can earn a higher gross margin than other businesses in your sector – that’s really attractive to buyers; they’ll know precisely what gross margin to expect in your industry and the fact that you’re able to earn a bigger margin than the norm tells them you have something special – and that means a bigger multiple.

Either you’re charging a higher selling price than your rivals (which, assuming you’re getting a good sales volume, means your product or service is superior in some way) or you’re able to deliver your product or service to the market at a lower cost per unit than your competitors (indicating superior efficiency).

I’ll talk later about how to increase selling price and how to improve efficiency – both of which will impact on gross margin.