What you are seeing
The figures are invented to show the pattern. They are not what any business should expect.
| Number | Three months ago | Now |
|---|---|---|
| Revenue | R160 000 | R200 000 |
| Gross margin | 45% | 40% |
| Gross profit | R72 000 | R80 000 |
Sales grew 25%. Gross profit grew 11%.
What it could be revealing
| It could be revealing | How to tell | You could |
|---|---|---|
| Discounts are winning volume | Average selling price and discounts given, by customer | Decide which discounts pay for themselves |
| Costs rose and prices did not | Cost per unit against three months ago | Raise prices on the products that slipped most |
| The mix moved to lower-margin work | Margin by product or by job | Decide which work to push and which to price up |
| One large customer buys at lower prices | Margin by customer | Decide the lowest price you can accept |
| Costs are booked in the wrong month | When your bookkeeper records supplier invoices | Match each cost to the month of its sale |
Check these first
- Gross margin: did it fall in one month or slide?
- Revenue trend: is the growth steady?
- Customer concentration: is one customer driving it?
- Break-even: how far has it moved?
Questions people ask
Is more revenue always better?
No. Extra sales at a lower margin can add little profit, and break-even rises when the margin falls. Compare gross profit from one period to the next, not just revenue.