Are you Winning the Gross Profit Margin game?

Jan 31, 2023 | Competition, Financial, Growth Tips, Income, Leadership, Management, Peer Groups, Planning, Strategy

Do you know if you are winning the GPM (gross profit margin) game?

This was a question I posed at my Jan 2023 “Financial Master Class.”

We collected the financial numbers from almost 200 participants, and looked at both their overall company margins, as well as their divisional GPM numbers.

How Do You Compare?

I am a big fan of looking at divisional GPMs, because it is easy to confuse the score of your company’s overall performance, when you combine bad results with good results.

For example, If you have two divisions and one is strong and one is weak, then when you only look at company wide numbers you are not getting a clear picture.

I am also a big fan of comparing your results against the “high achievers”, the top 20% of companies achieving the highest GPM.

Let’s Look at Design Build (DB).

The average GPM** for the entire Financial Master Class study was 49% before misc expenses (and 54% net of subs)

(** Note: We calculated Gross Profit as follows: Revenue – Cost of field labor [no burden], subs, materials)

In our study, the DB division average GPM (47%, 53% net of subs) was just a few points below the company wide averages.

However the DB high performers (top 20%) were doing much better than average, at a GPM of 60% (63% net of subs).

Do The math!

in DB, the high performers GPM was a full 13 percentage points above the average (60% – 47% = 13 points.)

Let’s take a minute to let that sink in.

That’s a world of difference!

To underscore that point, imagine if all DB companies in this study had the same overhead, this would mean that the high performers were earning 13 pts of Net Profit more than the average company.

Translating to net profit

The average net profit of all companies in our study was 8%.

If the high performers had the same overhead as the average, that would mean their DB net profit would be 13 points higher, at 21% NP.

That’s a sizeable gap.

But wait, there’s more

The “enhancements” division benchmarks had an even larger gap of 17 points. The average GPM was 56%, and the high achievers was 73%.

This begs the question: Where do you land, and how can you become a high performer?

Your Challenge – Compare yourself to your high scoring peers.

Too much accepted wisdom on the street is just heresay and rumor.

For example, “I heard that so-and-so is making a lot of money.”

Or, company owners start their own rumors by telling people “we are making a lot of money”, but they don’t really have a handle on their numbers.

It gets confusing who to believe, and who to compare yourself with.

This is why it is imperative to manage your company divisions by the numbers, and to compare yourself with the true high performers.

After you have a handle on what the numbers are telling you, then (and only then) can you “rob and duplicate” other companies best practices with confidence.

Regards, Jeffrey Scott!

P.S. The biggest value of my high impact peer groups is the industry-leading benchmarking we do. We dive into everything discussed here, and then some!

Today is the final day of our January White Sale – A thousand dollars off membership in my high-impact Leader’s Edge Peer Group if you apply before tomorrow, February 1st.

Apply here. before January ends.