In the business world, everything revolves around the margin, not just turnover. Because while turnover describes the size of a company, the margin shows how profitable it actually is. The margin shows how much profit a company makes from its revenue after costs have been deducted. A detailed margin analysis - especially at item level - can reveal hidden potential to significantly increase profits.
What is margin and why is it important?
When a company sells products, it is guided by the cost price of the items and adds a margin to this in order to determine the sales price. The margin is therefore the difference between the costs and the selling price and represents the actual profit potential. In any business venture, the margin is the core of profitability. Turnover alone says little about success unless the margin is right.
However, customers who expect additional discounts often come into play. A good example is a product with a list price of 100 euros. This is made up of the purchase price, the margin and a buffer for possible customer discounts. To ensure that the company remains profitable, the list prices must be set correspondingly higher to leave room for negotiations and discounts.
The challenge of margin management in day-to-day business
But how do you ensure that the targeted margins actually work in reality? The key lies in data analysis and, above all, in good reports that show the development of margins over time. A clearly structured report can show how purchase prices and margins develop over months or quarters and whether they are moving in the desired direction.
A practical example: The desired list price for a product is EUR 100, with the target being a margin of 30%. However, if the purchase price increases over time or the item is increasingly sold to customers with high discounts, the actual margin can gradually decrease. This is then reflected in the report: the originally planned price is not achieved and the percentage margin falls.
The role of margin reporting for targeted management
Ideally, a margin report should be reviewed regularly in order to identify deviations at an early stage and initiate countermeasures. The analysis could show that the original margin of 33% is continuously falling and is now only 26% in the current year, for example. In such cases, it is advisable to adjust the sales strategy. It may make sense to adjust prices or target customers where the desired margin can be realized.
By consistently monitoring and adjusting the margin, companies can optimize their profitability and ensure that the core objective - profit maximization - is achieved.
Conclusion: The power of margin analysis
Margin analysis is an often underestimated method of increasing a company's profitability. Companies using Dynamics NAV or Business Central have powerful tools at their fingertips to analyze margin trends and make targeted adjustments. This ensures that the core objectives of profit maximization and profitability are achieved. While turnover is important, the margin is ultimately what makes the difference. A closer look at the margins shows where hidden profit potential lies that can flush cash into the account.
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