Metric for Growth: Gross Profit Margin

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If a business owner had to manage by one single business metric, Gross Profit Margin (GPM) would be a solid choice.  It provides a good look at the important relationship between a business’s Sales and its Cost of Goods Sold. Understanding this relationship is critical to business success.

The Calculation:
     Gross Profit Margin  =  (Net Sales – Cost of Goods Sold) / Net Sales


(The calculation above uses numbers taken from an Income Statement. GPM is calculated as a ratio and is normally expressed as a percentage.)

Why is GPM an important metric to follow?  Understanding your GPM is critical because it lets you as the owner know what it takes to be profitable after covering your other overhead costs that are not part of your Cost of Goods Sold in your GPM.

Below is an example of a company that focused on improving its GPM from year to year. For 2011, its GPM was 49.6 percent. For 2013, the number increased to 51.0 percent. In just two years, the company improved GPM markedly. Had the company’s GPM remained static from 2011 to 2013 at 49.6 percent, Gross Profit for 2013 would have been lower by more than $102,000 lower.  

Although incremental improvement to GPM can be difficult to achieve, when accomplished it is truly a gift that keeps on giving.  The $102,000 in higher profits (and cash flow) that Warning Lights of North Georgia achieved during the past two years should continue in future years.  Improving GPM might come from finding new and lower cost sources of raw materials or re-engineering processes—without harming product quality.

Let’s do an example to illustrate the importance.  If your GPM percent is 40% and your overhead costs that you need to cover each month regardless of whether you sell anything is $100,000, then how much business do you need to generate just to breakeven for the month?

If you don’t know the answer to this question, it could mean the difference between losing money or making money.  In our example above, it would require the business to generate $250,000 in revenue to cover its overhead costs.  How did we come to this conclusion?  Using the following formula:

  • $100,000 overhead cost / 40% = $250,000

Keep a close eye on your GPM because it can make the difference between operating at a profit or at a loss.

Here are some Numbers Coach tools to help you calculate your GPM:

Tool kit

“8 Essential Numbers” online course

Are You Selling a Product—or a Commodity?

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We all want to think our business’s product or service is a solution that our customers can’t find elsewhere. But do our customers see it the same way? A product becomes a commodity when all of its units of production are identical, regardless of who produces them (ex: a raw material, such as steel). If you want to be viewed as a unique offering by customers, you have to differentiate your product from the competition.

5 Simple Strategies

Here are 5 simple strategies to help your product or service avoid becoming a commodity:

  1. Create a niche market. Are your products or services able to serve a niche in the market where it is seen as a premium? Rather than trying to appeal to a broad audience, focus your offering around the niche that will highly value what you offer.
    For example: Here at the Numbers Coach, we do not try to consult with business leaders on every aspect of their business. Instead, we focus specifically on coaching them on how to really understand their financials and apply that knowledge to growing their businesses.
  2. Target the right customer. Focus on the ideal customer. The Pareto Rule is often found in many businesses, where 80% of the revenue comes from 20% of your customers. Build a profile for that 20% of your customer base and spend the majority of your marketing budget to pursue the prospects that fit that profile.
  3. Highlight your expertise. Show your expertise in your product or service, whether that’s the wisdom you have achieved with years of professional experience or your work as an artisan making a product.
  4. Provide outstanding customer service. How does your company stand out from the competition? Is it on-time delivery, is it orders fulfilled within 24 hours, is it answering customer questions with a live service representative? Find a way for you to “Wow!” customers with your customer service.
  5. Personalize interactions. Create a way to offer a personal touch to your product or service. It could be a handwritten thank-you for a purchase or a simple gift to say “thank you for your continued business.” Show customers that you personally value their business.

Here’s to offering products, not commodities, to our customers!

Learn How to Fish: Hire a Coach vs. a Consultant

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An ancient proverb states, “if you give a man a fish, you feed him for a day. If you teach a man to fish, you feed him for a lifetime.”

In the business world, financial acumen is the fish. Companies hire experts to understand and solve financial issues. The experts complete the task and voila, the company has its fish.

But what if a business hires a coach who teaches the team leaders how to fish? Then the leaders will be able to ask the right questions, and then understand, analyze and solve financial problems on their own. The team leaders will now become the experts.

Hiring a coach instead of an expert equips, educates, and empowers company leaders. No more waiting for a consultant to provide all of the answers. Now managers have the necessary skills and insights to find the answers (which may include saving money on experts!)

Think of it as a football coach who teaches the quarterback how to run and call plays on the field. In addition to instruction, the coach gives the quarterback advice and support. As the quarterback gains confidence in their abilities through coaching, they begin to call audible plays on the field themselves based on how they see the defense line up.

Instead of an expert who is hired to identify specific problems and opportunities, a Numbers Coach offers financial tools that allow businesses leaders to be more engaged and active in their financials and to take charge of their financial success.

Hiring an expert will solve the immediate or near-term issues, but you will be right back where you started from when it comes to the next one. Alternatively, coaching is geared toward a broader understanding of financials and teaches the necessary skills.

With coaching, leaders will see the bigger picture, not just specific problems, and can handle future challenges and opportunities on their own. They will catch their own fish and have plenty to share.

Learn more about our Numbers Coaching services

Profit Answer Man Podcast: Increasing Cashflow with The Numbers Coach Mike Iverson

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In this episode, Rocky sits down with Michael Iverson –  the founder of the Numbers Coach, whose services include the preparation of key financial functions such as budgeting, cash flow forecasting, banking and capital funding, mergers and acquisition activity and general accounting for month end analysis and decision making.

In this episode, you will learn the following:

  • Understand your financial numbers and gain insights that can drive your business forward.
  • Master the art of cash flow management to keep your business running smoothly even in uncertain times.
  • Learn how to navigate through economic downturns and recession-proof your business.
  • Discover the secrets to creating financial reserves that will provide stability and peace of mind.
  • Take control of your financial future by implementing effective financial planning strategies.
  • Learn how to make informed decisions that will improve your business’s profitability and success.
  • Gain the confidence to face uncertain times head-on and come out stronger and more resilient.

The Numbers Coach Builds Financial Blueprint for Sustainability Company to Grow

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The Company

Sustainable Investment Group (“SIG”), founded by Charlie Cichetti and Jason Kiefer, provides sustainability services to commercial property owners. SIG provides high quality services for LEED certification with commercial buildings. A LEED certified building ensures the property uses sustainable activities to help protect our environment. SIG offers LEED training, consulting, and engineering services domestically and internationally. SIG has become an industry leader and expert in LEED practices.

Situation

In 2020 the SIG team wanted to enhance their financial management and reporting. They were looking to create a platform to communicate the company’s key performance indicators (“KPIs”) that drive its financial results. In addition, the SIG team wanted a “road map” that could guide them as they made financial decisions impacting strategies for growth.

Solution:  Numbers Coach Leadership and Numbers Navigator Services

The Numbers Coach‘s financial leadership services, led by Mike Iverson, were an ideal fit for developing SIG’s performance metrics. Iverson developed a financial scorecard focusing financial drivers that give the team visibility into the profits and cash flow critical to sustained profitable growth. The scorecard offers an “at a glance” view of results. Using our proprietary software (the Numbers NavigatorR), the Numbers Coach plan provided the road map for the SIG team to see where they were headed with profits and cash flow. The model provides a rolling forecast during the year so that the SIG team could make financial and operational decisions “on the go” to achieve their goals.

Results

Iverson pulled together financial and non-financial data to complete a customized scorecard and financial model. Each month, the Numbers Coach meets with the SIG team to methodically review results and provide the input and analysis from the Numbers NavigatorR software. From the monthly financial coaching meetings, the SIG team can take actions on activities that improve the company’s bottom line results.

For more information on Sustainable Investment Group visit www.sigearth.com

To learn more about Numbers Coach services, click here

“Mike has been an important part of our team.  His understanding of financial processes, cash flow, and how to explain our results gives our team the right tools to navigate our finances successfully and stay focused on our financial goals.”  

– CHARLIE CICHETTI

An Environmental Services Firm Uses The Numbers Coach to Achieve Financial Results

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The Company

Sustainable Investment Group (“SIG”), founded by Charlie Cichetti and Jason Kiefer, provides sustainability services to commercial property owners.  SIG provides high quality services for LEED certification with commercial buildings.  A LEED certified building ensures the property uses sustainable activities to help protect our environment.  SIG offers LEED training, consulting, and engineering services domestically and internationally.  SIG has become an industry leader and expert in LEED practices.

Situation

In 2020 the SIG team wanted to enhance their financial management and reporting.  They were looking to create a platform to communicate the company’s key performance indicators (“KPI”) that drive its financial results.  In addition, the SIG team wanted a “road map” that could guide them as they made financial decisions impacting strategies for growth.

Solution: The Numbers Coach Leadership Service

The Numbers Coach (“NC”) financial leadership services were an ideal fit for developing SIG’s performance metrics.  NC developed a financial scorecard focusing financial drivers that give the team visibility into the profits and cash flow critical to sustained profitable growth.  The scorecard offers an “at a glance” view of results.  NC developed a financial model from its proprietary software the Numbers NavigatorTM that provides the road map for the SIG team to see where they were headed with profits and cash flow.  The model provides a rolling forecast during the year so that SIG team could make financial and operational decisions “on the go” to achieve their goals.

Results

NC pulled together financial and non-financial data to complete a customized scorecard and financial model.  Each month NC meets with the SIG team to methodically review results and provide the input and analysis from the Numbers NavigatorTM financial software.  Each monthly financial coaching meeting, the SIG team can take actions on activities that improve the company’s bottom line results.

For more information on Sustainable Investment Group visit www.sigearth.com

To learn more about the Numbers Coach financial leadership services, click here

“Mike has been an important part of our team.  His understanding of financial processes, cash flow, and how to explain our results gives our team the right tools to navigate our finances successfully and stay focused on our financial goals.”  

– Charlie Cichetti

Numbers Coach Helps Medical Firm Stay Financially Focused

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The Company

 Georgia Pain and Spine Care (“GPSC”), founded by Dr. Charles Brownlow in 2010, is a leading pain management medical services firm that provides comprehensive solutions to help restore each patient to their original lifestyle.  The company uses progressive approaches to pain management with education, counseling, and minimally invasive procedures.  Their mission is to relieve pain, increase productivity, and improve the quality of life for its patients using technologically advanced treatment regimens through is various metro Atlanta offices.

Situation

 In 2020 the GPSC team wanted to enhance their financial management and reporting capabilities.  They wanted to create a platform to communicate the company’s key performance indicators (“KPI”) and help educate its key team members on what drives its company’s financial results.  In addition, the GPSC team wanted a “road map” that could guide them as they made financial decisions impacting strategies for growth.

Solution: The Numbers Coach Financial Leadership Services

 The Numbers Coach (“NC”) financial leadership services were an ideal fit for developing GPSC’s performance metrics.  NC developed a financial scorecard to focus on the financial measurements that drive company profits and cash flow critical to sustained profitable growth.  The scorecard offers an “at a glance” view of results.  NC developed a financial model from its proprietary software the Numbers NavigatorTM .  The software provides a road map for the GPSC team to see where they are headed with profits and cash flow.  The software’s rolling financial forecast provides the GPSC team with a tool to make critical decisions “on the go” to achieve their desired results.

Results

NC pulled together financial and non-financial data to complete a scorecard and financial model.  Each month NC meets with the GPSC team to methodically review results and provide the input and analysis from the Numbers NavigatorTM financial software.  From the monthly financial coaching meetings, the GPSC team can take actions on activities that improve the company’s bottom line results.

For more information on Georgia Pain and Spine Care visit www.gapaincare.com

To learn more about the Numbers Coach financial leadership services, click here

“Mike has become an important part of our team.  His understanding of financial processes, cash flow, and approach to educating us on our results gives our team the right tools to help us understand how to navigate our finances successfully and stay focused on our financial goals.”  

Dr. Charles Brownlow, Founder / Medical Director
 

Numbers Coach Helps a Content Publisher Stay Financially Focused

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The Company

EB Medicine (“EBM”), founded by Robert Williford, and it is carried on by family members Stephanie Williford and Robin Wilkinson.  EBM provides high quality content for the physicians who want to stay on top of issues in their specialty.  This includes study guides for a physician to keep up their continuing medical education and stay abrest of new methods or technologies.  EBM products are produced by practicing physicians from leading institutions around the world with a broad range of clinical expertise.

 

Situation

In 2016 the EBM team wanted to enhance their financial management and reporting.  They were looking to create a platform to communicate the company’s key performance indicators (“KPI”) that drive its financial results.  In addition, the EBM team wanted a “road map” that could guide them as they made financial decisions impacting strategies for growth.

 

Solution: The Numbers Coach Financial Leadership Services

The Numbers Coach (“NC”) financial leadership services were an ideal fit for developing EBM’s performance metrics.  NC developed a financial scorecard focusing financial drivers that give the team visibility into the profits and cash flow critical to sustained profitable growth.  The scorecard offers an “at a glance” view of results.  NC also developed a financial model that provided the road map for the EBM team to see where they were headed with profits and cash flow.  The model provides a rolling forecast during the year so that EBM team could make financial and operational decisions to achieve their goals.

 

 

 

Results

NC pulled together financial and non-financial data to complete a customized scorecard and financial model.  Each month NC meets with the EBM team to methodically review results and provide the input and analysis from the scorecard and financial model.  From the monthly financial mentor meetings, the EBM team can take actions on activities that improve the company’s bottom line results.

For more information on EB Medicine visit www.ebmedicine.net

To learn more about the Numbers Coach financial leadership services, click here

“Mike has been an important part of our team over the past year.  His understanding of financial processes, cash flow, and how to explain our results has provided our team with the right tools to navigate our finances successfully and stay focused on our financial goals.”  

Stephanie Williford, CEO

Numbers Coach Helps Manufacturer Improve Financial Results

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The Company

Direct Refrigeration Sales (“DRS”), founded by Tim Litsch, provides a high quality alternative to OEM replacement parts for the refrigeration industry.   One of their primary parts is a gasket that seals a refrigeration unit when closing the door and ensures the contents remain cold and intact inside the unit.  DRS products are of such quality that even several OEMs in the food service industry source with DRS for their replacement parts.

Situation

In 2016 Tim Litsch wanted to enhance his financial management and reporting.  The DRS team was looking to create a platform to communicate the company’s key performance indicators (“KPI”) that drive its financial results.  In addition, they wanted to see what needed to be done for the company to extract themselves from financing that was non-traditional but necessary to carry the business forward.  The DRS team wanted visibility through a financial model that would tell them what needed to be done to move from non-traditional financing to traditional bank financing at a lower cost.

Solution: The Numbers Coach Financial Leadership Services

The Numbers Coach (“NC”) financial leadership services were an ideal fit for developing DRS’s performance metrics.  NC developed a financial dashboard scorecard focusing financial drivers that provide visibility into the profits and cash flow critical to sustained growth of a business.  The scorecard offers an “at a glance” view of results.  NC also developed a financial model that provided a road map for the DRS team to see where they were headed with profits, cash flow, and the pay down of debt.  The model provided a rolling forecast during the year so that Tim and his team could make financial and operation decisions to achieve their goals.

Results

NC effectively pulled together the required financial and non-financial data to complete a dashboard scorecard and financial model.  Each month NC meets with the DRS team to methodically review results and provide the input and analysis from the scorecard and financial model.  From the monthly meetings, the DRS team implemented actions to take on activities that would improve the company’s bottom line results.

For more information on Direct Refrigeration Sales, visit www.directrefrigeration.com

To learn more about the Numbers Coach financial leadership services, click here

“Mike has been an integral part of our team over the past year.  His solid understanding of financial reporting processes and cash flow has provided our company with the right tools to navigate our finances successfully and help us stay focused on our financial goals.”  

Tim Litsch, Founder / CEO

The Numbers Coach Helps Medical Practice Improve Profits

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The Company

Choice Care Occupational Medicine and Orthopaedics (“CCI”), founded by Dr. Ish Khan, provides a 21st Century practice model which blends the two specialties of occupational medicine and orthopaedics. Dr. Khan’s unique program is the only one of its kind in Georgia that has proven enhance the quality of patients’ medical care along with dramatic cost savings for its clients.  (Now part of U.S. Healthworks, CCI has six locations in metro Atlanta.)

Situation

Dr. Khan wanted to enhance his team’s financial management and reporting.  The CCI team was looking to create a platform to communicate the company’s key performance indicators (“KPIs”) that drive its financial results.

Solution: The Numbers Coach Financial Leadership Services

According to Dr. Kahn, the Numbers Coach (“NC”) financial leadership services were an “ideal” fit for developing CCI’s performance metrics.  NC developed a financial dashboard focusing financial drivers that provide visibility into the profits and cash flow critical to sustained growth of a business.  The dashboard offered both graphs and numerical charts to give an “at a glance” view of results.  In addition, TFI reviewed the company’s financial results each month to help the team identify areas of concern or improvement.

Results

NC effectively pulled together the required financial and non-financial data to complete a dashboard.  Each month TFI assisted with the monthly financial results for the dashboard.   More importantly, NC’s methodical approach to measuring and reporting financial results provided the CCI team with timely information to take actions on profitable activities for bottom line results.

“Mike has been an integral part of our team over the years.  His solid understanding of financial reporting processes and systems provided our company with the right tools to navigate our finances successfully.”

Dr. Ish Khan, founder/CEO