Sign & Digital Graphics

February '19

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S I G N & D I G I T A L G R A P H I C S • February 2019 • 67 Gross Sales Revenue is the total money collected from sales; and Cost of Goods Sold is the cost of producing/providing your products and/or services includ- ing raw materials, production labor, the cost of subcontracted work, packaging, delivery, and consumables used in the manufacturing process. Anything that goes into the cost of making the product or providing the service you are selling. Simply stated, the gross margin is the difference between the cost to produce something and its selling price, divided by the product's price (expressed as a per- centage). For example, if you sell some- thing for $10 and it costs $4 to produce, the gross margin on that product is 60 percent: Recent studies s how that more than three-quarters of all businesses in the U.S. enjoy a gross margin between 25 and 40 percent. In my discussions with the owners of sign shops, the rough average in our industry is between 45 percent and 65 percent, with large-volume operations or contract shops hovering around the 35 percent mark and short-run, made- to-order, quick turnaround shops often commanding margins of greater than 65 percent. No one can tell you precisely what your gross margin should be but, without a doubt, you do have one. Make it your business to know exactly what it is—and be aware of the direction it's heading—at any given time. Gross Margin Vs. Mark-Up The answer to the second question is false. Often, I hear "mark-up" and "gross margin" used interchangeably. This is a dangerous misconception. Most people- on-the-street and college marketing text- books define mark-up as the percentage of a product's cost that is added to it in order to come up with a selling price. But the mark-up percentage does not equal its gross margin. In the previous example, if that prod- uct costs $4 to produce and you applied a 50 percent mark-up (in other words, added $2) the selling price would be $6, but the gross margin for that product would be 33 percent: The table below shows the relation- ship of mark-up to gross margin: The multiplier associated with the desired gross margin is important to remember. If you know how much a product or service costs to produce, and want to ensure a specific gross margin, you can quickly calculate a profitable selling price using the appropriate mul- tiplier from the above chart or this for- mula: Author's note: I did find one marketing textbook that recognizes two acceptable defi- nitions of mark-up—the one described above and one that defines mark-up and gross mar- gin exactly the same. The logic used to support Gross Margin = GSR-COGS GSR = 0.60 or 60% $10-$4 $10 = 0.33 or 33.3% (Gross Margin) $6-$4 $6 Selling Price = Cost of Goods Sold 1 = Desired GM Mark-Up Multiplier Gross Margin 25% 1.25 20% 50% 1.50 33% 67% 1.67 40% 100% 2.00 50% 150% 2.50 60% 300% 4.00 75% 900% 10.00 90% Think of gross margin as your business pulse. This "vital sign" can tell you the health of your business. Milwaukee, WI May 17-18, 2019 Irving, TX March 28-30, 2019 TRAINING in the HALL Wensco Sign Supply ............115 GSG .....................................111 Hirsch Solutions Inc .............225 JDS Industries Inc ...............127 PDS Equipment ...................237 Stratojet USA .......................445 GSG .....................................111 Hirsch Solutions Inc .............225 Please visit THENBMSHOW.com for more information. Training Stop Training Stop Hands-On

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