A recent report by KPMG indicates that UK firms have been price cutting since the recession started and this has cost UK businesses £20Billion. http://www.bbc.co.uk/news/business-12591327

Discounting your prices has a major impact on your gross profit margin and in the current economic climate with inflationary pressure from factors outside of our control, such as rising fuel and commodity prices, you will have to work harder and gain more sales to achieve the same level of profit.

Your gross profit margin has only two handles that you can pull to change it.

One – Buy better

Two – Sell for more

If inflation is pushing up the price of your raw material or goods and you are pushing down your prices to gain sales then this can only damage your business.

If you reduce your gross profit margin by 10% from 55% to 45% on a company turning over £100,000 then you will need to increase your sales by over £22,000 to ensure that you still earn your £55,000 gross profit.

If you were to increase your gross margin by just 2% then you could reduce your sales to just under £96,500 to make the same amount of gross profit.

In a buyer’s market getting a 2% reduction in direct costs is easier to achieve than a 22% uplift in sales. The current volatility does, however, present an opportunity for you to take advantage of other businesses dropping their prices to improve your own business’s profits.

If you would like to fully understand the impacts that spending time on your business could have for you and you wish to maximise your profitability, please contact us for an initial no obligation business review.

Telephone: 01903 602211 or Email: info@atbusinessassociates.co.uk