[jsfg_cinti] HyperGrow Your Business Workshop comes to Fairfield August 2, 2007, Sponsored by MTSBDC Ohio

For JSFG Members:
The HyperGrow program features: 

*       The HYPERGROW 9: Nine critical laws every company must use to grow. 
*       Subsystems to make each of the laws work for you. 
*       Over 100 specific suggestions to improve your business. 
*       The key secret question used by the best marketing consultants. 

For more information visit:  http://www.mtsbdc.org/hypergrow.htm 

 

or contact Chris at 513-489-2540, email cascolese@xxxxxxxxx 

 

August 2, 2007 9 to 4

Workshop Location: 

Receptions Inc. 

5975 Boymel Dr. 

Fairfield, OH 45014 

 

***********************************************

Pricing, one of the four "P's" of Marketing

 

HYPERGROW YOUR BUSINESS! R: Its All in the Margins

 

Law three of the HYPERGROW program looks at the topic of pricing, one which
challenges many small (and large) business owners to "refine to perfect
pricing." No discussion of "perfect" pricing is complete, however, without
considering the concept of margins. 
When looking at margins, we are examining the intersecting point of two
vitally important concepts in the development of the business: marketing -
the comprehensive relationship between a company and its customers and
potential customers, and finance - the way money flows into and out of a
business. Both factors rely on each other and cannot succeed without the
other. Margin is where these points come together in a business - as they
are both influenced by pricing decisions, so the concept cannot be
overemphasized. 
For a better understanding, let's dive into some accounting semantics and
define some of the major terms. Typically margins refer to the accounting
concept of GROSS MARGINS, which are found on the income (also called the
profit and loss) statement. GROSS MARGINS can be expressed both in terms of
a dollar amount and a percentage. Let's look at an example. 
Consider that Jane has a gift shop and buys a certain gift item for $6 each,
but turns around and sells that product to customers for $9 each, making a
$3 profit each unit. In this instance, GROSS MARGIN subtracts the selling
price ($9) from the product cost (cost of goods sold - $6), to come up with
a GROSS MARGIN DOLLARS of $3 per unit. This is considered not only by
individual unit, but also on the combined whole. If she sells $23,000 in a
given month and her cost of goods sold for those items is $12,000, then the
GROSS MARGIN DOLLARS are $11,000. 
And while knowing gross margin dollars is important, it is perhaps even more
important to learn the GROSS MARGIN PERCENTAGE, which simply divides gross
margin dollars by the sales price. In the instance with the $9 item, the
GROSS MARGIN DOLLARS are $3 or 33% of revenues. In the case of $23,000 sales
in a month with $11,000 of cost, the GROSS MARGIN DOLLARS are $12,000, but
the percentage is 52.2%. 
Tracking and managing margins can be one of the most important things a
business does. In some businesses, for instance a law firm, may not sell
physical products and the concept of "cost of goods sold" may not be as
tangible. The firm does, however, pay its employees a certain amount per
dollar, yet bills their services out at a higher rate. So the concept of
margins also applies here as well. 
So what does this have to do with pricing? Well a lot. One way you can use
margins is to determine a targeted margin rate. A way to start with this
process is to look at the average margin percentages companies earn in your
industry. It does not mean to be average, but it gives you a baseline
understanding of the ballpark you should be in. It also lets you make a
conscious decision about where your margins should perform in relation to
the industry average. Being higher (or even lower) is fine, but make that
decision with the knowledge of where the industry performs. 
While comparing yourself to others in the industry is valuable, even more
important is tracking your own margin rates over the course of time. Are
they getting stronger or weaker? How much? And why? Much of this article is
rather basic, but I have worked in many larger, well established companies
who could do a significantly better job tracking their margins over time.
Personally, I prefer to use charts - they paint an important picture. 

Curt Clinkinbeard is a business advisor and author of HYPERGROW YOUR
BUSINESS. He can be reached at curt@xxxxxxxxxxxxxx

Call if you have questions:

Chris



 

Chris Ascolese CBA
Director
Manufacturing Technology
Small Business Development Center Region V
4700 Ashwood Dr Ste #135
Cincinnati, Ohio 45241
Office: 513-489-2540
Fax: 513-489-2543
http://www.mtsbdc.org/
cascolese@xxxxxxxxx






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