Today we’ll briefly (kinda) examine a hot topic of conversation floating around the Bike industry. It’s a word uttered in disgust by some shop owners. A word touted by sales reps and industry insiders. A word that can be expressed as a percentage or as a dollar figure. Two star-crossed syllables, coveted eternally by Vendors and Dealers alike.
- Take time to be checked in with your GROSS MARGIN % on a total average basis as well as a category basis.
- Don’t make the mistake of being obsessed with increasing the GM of every product you buy or sell. Rember margin is only one tool in your toolbox.
- Understand that a high gross margin doesn’t always mean high consumer value. Also read, if you are unable to sell a product, or your employees and customers do not recognize the value of a product then it’s gross margin is effectively ZERO.
- Operating Profit Margin (OPM) is all relative. There is NO right or wrong number. Frankly, this is a measure of efficiency. How good are we at turning our resources into dollars?
- OPM is not an answer to a question. But rather, a way for us to ask meaningful questions about our strategy and execution.
- Once you have found your approximate OPM, use it as a benchmark and refer to it Quarterly with your accountant and your team. Naturally, as a business owner, you probably already know where you’d like to see improvement in your shop’s efficiency. Get motivated and implement a strategy that you believe will improve your OPM then check your result against your benchmark.
Net Profit Margin % : If your shop is profitable this number will be greater than Zero and will represent REVENUE minus COST OF GOODS SOLD, OPERATING COSTS, TAXES, and INTEREST ON OUTSTANDING DEBTS, divided by REVENUE.
- Net Profit Margin is how we place a value on a business in a Capitalistic society. If you want to see this type of valuation happen in “Real-Time,” watch shark Tank.
- If you’re a shop owner or manager, Net Profit Margin is how we prove that our business has an intrinsic value that can be shown in dollars. It also lets us know the investment value of the dollars we have spent.
- As an owner, should you ever decide to Sell your shop, Borrow money for another venture, or Retire; knowing your Net Profit Margin will gve you a head start in planning for your future.
Okay friends, so thats MARGIN as I understand it. If you have questions or want to explore these topics further hit me up on Facebook, Insta-whatevers, or in the comment section below! Here’s to the IBD.