Do you buy products then add a flat fee to get your sale price?
If so, you might be hurting your business. Consider this example.
Say you buy an item, like tyres for $55.00 each.
Then you simply add $70 on top.
Your sale price is now $125.00
This means your Gross Profit is $70 and your Margin is 56%
But say you buy a tyre for $200 and add your flat fee of $70 on top.
Your sale price is $270.
Your Gross Profit is still $70,
But your Margin has dropped through the floor and is now only 26%!
Your margin dropped so dramatically because your ‘mark-up’ (the amount you add on) is for a fixed amount, not a percentage of your sale price.
There may be times when this is a good idea. Such as:
Convenience - fast and simple to work out
Price pressure, or
Maybe you just like it
But you’re hurting your business and likely not earning enough margin.
Take the time to work out your Margin on product costs as it can lead to some important insights into your business. It might allow you to revise your pricing, or highlight where you should be focusing your attention.