Understanding gross margin will drive your business forward

Marks & Spencer unsurprisingly followed other retailers in announcing disappointing results this week and, at least partly, blaming it on the weather-

http://m.bbc.co.uk/news/business-29911371

I have stated before in my blog that retailers have more than one trick up their sleeves and that cold weather doesn't decimate sales.

Marks & Spencer have now seen 13 consecutive drops in clothing sales, so there's much more to this than just a bit of unseasonal weather. The positive news from this is the increase in gross margin on their products.

If this is at too simple a level them forgive me, but gross margin is selling price minus buying cost. When you improve this, it can enable all sorts of changes to your business that you want to happen. Even if total profits are falling, an increase in gross thin means that you are working less hard for you money. If every transaction through the till brings you more profit every time, then it frees up cost for other expenditure or allows you to put money aside a rainy day.

It all boils down to the fact that you make your money from less transactions, less customers and potentially less staff. All of the time-consuming effort that makesyou  money also costs you money.

Looking at this as an entrepreneurs, you need to look at what profit ypu expect to make on every item you sell. I have seen independent clothing retailers have two sets of numbers in their price labels. The first is the price, the second (in a disguised format) is the lowest price they would consider if a customer wanted to haggle over prices or want a discount for multiple purchases. If you know what you want from each product then you know what products are worth the effort if youskr them yourself, or which products are worth the price at the wholesalers.

It is the start of every other calculation you make for your business and a clear understanding of this will drive your business forward.