I once heard a great lesson on the “Meaning of Life” -Gross Margin –by Tim Atterton a Champion of Entrepreneurship and Small Business.

Tim has since updated his definition and calls it ‘the real income of any business’, which he says has powerful undertones. I’m sure you’ll agree with him. With his permission I am pleased to share it with you…..

You only need to know 3 lines in your Profit and Loss Statement….

Revenue (Sales)

Cost of Sales &

Gross Profit.

All other things are less important and here’s why…

Imagine your Profit and Loss Statement has a metaphorical dotted red line drawn below the Gross Margin…..

The potential to improve the profit below the red dotted line is mathematically limited to ZERO!! Try as hard as you want and eventually you’ll have no fixed costs and no business- its virtually impossible. You can’t ring the landlord and tell him you’re not paying the rent!!

On the other hand… the capacity to increase profit ABOVE the line in any business is mathematically UNLIMITED!!! This is where good small businesses focus their energy.
Tim says there are only 4 ways to do it:

• Resist the temptation to discount or cut your prices or give discounts – even if your competitors are doing it.
• Raise you prices a little and often –no need to put a banner out saying “price increase today” – keep it under the radar.
• Reduce your cost of sales
• Sell higher margin products and drop low margin products

All these initiatives will go straight to your bottom line and improve your Nett Profit. That’s what it’s all about!

Thanks Tim – I’ll never forget that great advice and it certainly helped me in my business.

Steve Eastwood
Small Fish Business Coaching Melbourne
www.smallfish.com.au