INDUSTRY
MARGIN V. PROFIT
MARGINAL ERROR
What’s the difference between cash margin and gross profit? For independent dealers, the difference can matter. Nina Rosandic spea ks to industry experts abou t the importance of marg in management
P
ut simply: “Cash is the amount of money you make and gross profit is the margin percentage,” says Spicers’s sales and marketing director, Tom Rodda. It seems obvious, however, it is not always as straightforward as it sounds and there can be some confusion when it comes down to the maths. Rodda explains: “It’s imperative that dealers know the difference. I often see dealers – and occasionally our sales force – thinking it’s better to sell a £10 item and make 30% margin – three pounds cash, than sell a £20 item and make 20% margin – four pounds cash. Clearly option two is better.” Michelle Naphtali, director at P1 Training and Development, works closely with dealers to implement profit management strategies, and a commonly asked question at their training workshops is: “Do you take percentage or pounds to the bank?” She goes on to explain that often the dealers they work with are “so focused on chasing the percentage, they ignore the often easily attainable extra cash margin available from their customer base”. Integra MD Aidan McDonough sums it up: “Cash is king, especially in this market.”
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NOVEMBER 2012 www.dealersupport.co.uk
“If you are milking your major accounts as cash cows expect for your competitors to take them away”
Game planning Keeping a hold on profit margins, in order to maximise potential cash profits, should be the top of any dealer’s list. P1’s Naphtali says: “In our opinion, margin management is the most important thing a business can do outside of winning new business. Equally, if the business manages margin well, it makes the winning of new business easier as they will already have a clear plan as to how to maximise the margin once the business is won.” McDonough agrees that it is essential, particularly if dealing with large accounts with contracted price lists and cites cost-plus pricing models that follow price decreases as a key pitfall for dealers. Similarly, Rodda sees margin management as vital and uses some basic workings to illustrate how “every point of margin gain drops through to the bottom line. Imagine a dealer making 30% margin who has 25% operating costs leaving five per cent net profit. Grow your margin to 35% and operating profit doubles. How much turnover would you need to bolt on to get the same result?” Rodda also suggests that margin management is the only part of the sales process where the salesperson has complete