The act of comparing yourself to others is usually an unhealthy mindset. In the case of your company and your company's gross margin, however, comparison can be a very good thing. Tracking how your company is doing compared to your competitors can help you gauge where you're at and why compared to others in your industry.
- KPI: Gross Margin
- DEFINITION: Gross Margin shows you how much revenue you have left for debt and other expenses after production costs are covered.
- FORMULA: Total Revenue – Cost of Goods Sold = Gross Margin
- BENCHMARKS: Gross Margins vary by industry, but higher is generally better
- SIGNIFICANCE: Gross Margin is a measure of operational efficiency; analyzing it in conjunction with other metrics can help companies find the “sweet spot” that maximizes profits.
- RECOMMENDATION: If Gross Margin is low, examine labor, materials, overhead and other COGS for inefficiencies; if it’s high, look for ways to leverage remaining revenue.
- RELATED: COGS, Operating Expenses, Net Income
Companies are generating more data than ever before, but most of it just sits there. Getting good insights from it is often too hard, too costly or just takes too much time. That's too bad because the benefits of being data-driven are substantial. (See The ROI of Big Data, Analytics & Benchmarking for more.) Part of the reason we developed our Big Data, analytics and benchmarking software was to solve this problem so CEOs and senior managers could get the data-driven insights they need to leverage strengths, strengthen weaknesses, identify threats and exploit opportunities. This series of blog posts examines the individual performance metrics that make up that analysis.
For more information on the value of measuring financial ratios, read here.