Sign & Digital Graphics

November '12

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Make it Your Business BY VINCE DI C E C CO Size Doesn't Matter... Profits Do Vince DiCecco is a business training and development consultant and owner of the Acworth, Ga.-based busi- ness, Your Personal Business Trainer, Inc. He has been sculpting his sales, marketing and training techniques since 1979. Vince will share inno- vative and practical ideas in his seminars on business management excellence at all NBM Shows in 2012 and is available to small- to mid-sized companies striving for sustained growth and market dominance. Contact him via email at vince@ypbt.com or visit his com- pany website, www.ypbt.com. t simultaneously amazes and demor- alizes me that so few sign and digital graphics business owners are familiar with the term "gross profit margin." In my education classes at The NBM Shows, I regularly poll the audience for how many could define gross margin (GM), calculate its value or know what their business's GM is. Typically, about 10 percent of attendees' hands go up. Recently, I posed my usual query to an assemblage of several dozen and guess how many hands arose? Zero… zip… nada. Really? C'mon, people, I beg of you. Wake up and smell the coffee! The health and wellbeing of your enterprise lay in the balance. I The following are some observations about today's marketplace. • Today's customer buys less per order than before the onset of the Great Recession. The quantity of signs and/or number of line items being ordered is markedly less than an average order of just three years ago. • Clients and prospects are more likely to ask for price concessions with- out willingly wanting to give up any aspect of quality, service or delivery, or satisfying volume discount minimums today than ever before. • Over the past several years, the Cost of Goods Sold (COGS)—that is, the direct costs (including production labor, materials, manufacturing consumables, packaging and shipping) that go into cre- ating the products or providing the ser- vices that a company sells—has steadily, albeit modestly, risen. • Prices, in general, for most con- sumer durable goods—such as clothing, electronics and household/school/office supplies—and personal services have either remained the same or has gone down due to heavy competitive price pressure. If you agree with or your business finds itself having to contend with any one of the above, your company's gross margin is being seriously threatened. And, you need to do something now! Eww, that's Gross Think of gross margin as your compa- ny's pulse. It can easily indicate the health of your business, a particular sale, or a particular product. Some people have a strong pulse; others have a weak one. Some have a fast pulse, while some hearts beat slowly. Some people have no pulse at all, a group we usually refer to as the dead. Likewise, a business with a near- zero gross margin should have their last will and testament up to date. It is just a matter of time before they are out of business. The formula for gross margin is: Gross Margin = (Gross Sales Revenue – Cost of Goods Sold) ÷ Gross Sales Revenue Gross Sales Revenue = total money collected from sales Cost of Goods Sold = total materials and manufacturing labor costs 84 • November 2012 • SIGN & DIGITAL GRAPHICS Can you define the term "gross margin," and do you know what yours is? You should! Simply stated, 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 $1 and it cost $0.40 to produce it, the gross margin for that product is 60 percent: ($1 – $0.40) ÷ $1 = $0.60 or 60 percent Healthy Margins? Based on a Philadelphia investment firm's study of all companies in North America, about three out of every four have a gross margin of between 25 and 40 percent. In my discussions with sign and digital graphics producers, the industry GM average is in the 33 to 65 percent range, with strictly contract shops hover- ing around the 25 percent mark and most custom shops commanding margins of 60 percent or better. No one can tell you, precisely, what your gross margin should be, but you do have one. Make it your business to know exactly what it is and what direction it is heading at any given time. If you are primarily a made-to-order shop and your GM is less than 40 percent, either it is costing you too much to make things or you are under-pricing your goods, leav- ing money on the table and/or not get- ting what you deserve. Locate your company's most current Consolidated Income Statement—also known as the Profit & Loss Statement. If your GM is not already calculated and noted, take the Gross Profit figure— the line immediately below the sec- tion labeled Cost of Goods Sold—and divide that number by the top line— Gross Revenues (or Total Sales). That is your GM for the period covered by that financial statement. Now, locate previ- ous years' P & L Statements. Calculate RUNNING THE BUSINESS

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