InTents August/September 2023 - 36

business | shelf life
Getting into a gross margin
state of mind
By Jason Bader
W
hile working in my family distributorship,
I had the importance
of gross margin dollars drilled
into my head at a very young age. We
occasionally talked about sales when it
came to an extraordinary order, but the
next question out of every mouth was-
how did we do on it? In other words,
did we make any gross margin on it or
are we nurturing our charitable side?
I think this awareness of gross margin
came from an open attitude regarding
financials and how income worked in
the company. When your team understands
how you pay for the operation of
the company, the gross margin begins to
take on a whole new meaning.
Education
I am currently working with a client
on changing the mindset from top-line
sales to gross margin dollars. Eventually,
we will drive down to net profit, but we
needed to start with the basic concept
of gross margin importance. Part of the
process had to begin with the owner. He
freely admits that he falls into the gross
sales trap. It's a big number. It's fun to
talk about. It just doesn't do him a whole
lot of good. When you want to change
the mindset of the people who work
with you and for you, it is important to
talk the talk.
The transformation with this client
began with education. With the help of
the owner, we gathered the team and
discussed how the income statement
worked. Although I had a basic income
statement generated, based on actual
36 intents aug-sept 2023
year-end numbers, we needed to
make sure the employees understood
the concept. When I discuss income
statements in any teaching setting,
I typically use the dollar bill trick to
get the point across. I hold up a dollar
and tell the group that we just sold
something for a dollar and we paid the
supplier 75 cents for it. Tear off about
three-fourths of the bill and drop it on
the floor. (By the way, if you use a larger
denomination, you will really get their
attention.) Holding the remaining one
quarter of the bill, I explain that this
represents gross margin. At this point,
I ask the group if the owner of the
company gets to put the gross margin
in their back pocket at the end of the
month. I usually see a shaking of heads,
but I would bet that there are a few
who believe that the owner pockets
the gross margin dollars every month.
Obviously, this isn't the case.
I then start asking about the
expenses that come out of the gross
margin before it becomes net profit.
While they list off some items (wages,
benefits, rent, utilities, etc.), I am
consistently ripping off bits of the bill
and dropping it on the floor. I also make
comments on each of the expense items
and help them come up with a few they
might have overlooked. Ultimately,
I wind up with a very small chunk
representing net profit. This leads to a
discussion of the importance of gross
and net profit. This demonstration
is a great way to start changing
the mindset.

InTents August/September 2023

Table of Contents for the Digital Edition of InTents August/September 2023

InTents August/September 2023 - Cover1
InTents August/September 2023 - Cover2
InTents August/September 2023 - 1
InTents August/September 2023 - 2
InTents August/September 2023 - 3
InTents August/September 2023 - 4
InTents August/September 2023 - 5
InTents August/September 2023 - 6
InTents August/September 2023 - 7
InTents August/September 2023 - 8
InTents August/September 2023 - 9
InTents August/September 2023 - 10
InTents August/September 2023 - 11
InTents August/September 2023 - 12
InTents August/September 2023 - 13
InTents August/September 2023 - 14
InTents August/September 2023 - 15
InTents August/September 2023 - 16
InTents August/September 2023 - 17
InTents August/September 2023 - 18
InTents August/September 2023 - 19
InTents August/September 2023 - 20
InTents August/September 2023 - 21
InTents August/September 2023 - 22
InTents August/September 2023 - 23
InTents August/September 2023 - 24
InTents August/September 2023 - 25
InTents August/September 2023 - 26
InTents August/September 2023 - 27
InTents August/September 2023 - 28
InTents August/September 2023 - 29
InTents August/September 2023 - 30
InTents August/September 2023 - 31
InTents August/September 2023 - 32
InTents August/September 2023 - 33
InTents August/September 2023 - 34
InTents August/September 2023 - 35
InTents August/September 2023 - 36
InTents August/September 2023 - 37
InTents August/September 2023 - 38
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InTents August/September 2023 - 40
InTents August/September 2023 - 41
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InTents August/September 2023 - 43
InTents August/September 2023 - 44
InTents August/September 2023 - Cover3
InTents August/September 2023 - Cover4
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