Welcome to this special post on the importance of gross profit margin, co-written by Karl Bryan and Eric Dombach. Use this as you do end-of-year budgeting and forecasting with your coaching clients!
High Gross Profit Margin: The Metric that All Successful Companies Share
All successful companies have ONE THING in common: a high gross profit margin.
Unfortunately, most business coaches don’t even know what that means–let alone how to help their high-end clients in this area.
Simply put, gross margin is sales minus the cost of goods sold. Calculate sales after returns and discounts, and cost of goods sold before overhead like marketing and facilities. The higher the margin, the more fail-proof the business is. Many of the largest companies in the world have extremely high gross profit margins. For example, Apple’s is about 40%, Google hovers around 60%, and Meta (the company formerly known as Facebook) is around 80%.
Gross profit margin is sales minus the cost of goods sold. Calculate sales after returns and discounts, and cost of goods sold before overhead like marketing and facilities. The higher the margin, the more fail-proof the business is.
Want to help your clients improve theirs? Consider these questions:
- Does your client have a $10,000+ product with a minimum of 50% margin?
- If they have that, do they have a $25,000 product with a minimum 50% margin?
- If your coaching client’s business could talk… what would it say to your business coaching client?
- What, specifically, has the owner been ignoring–and what, specifically, needs to be completed?
- Does your client have financial statements (please don’t mistake tax returns for financial statements… it’s embarrassing)?
- If so, are they reviewed (specifically, itemized expenses) quarterly?
- If not, how will they make that (financial statements) happen?
If you don’t know the answers to these questions–and, particularly, what the answers should be, and how to help your clients develop the products and systems they need to succeed, hang tight. My buddy Eric will share some Silver Bullets that can help.
Meet the Silver Bullets that Matter to Gross Profit Margin
Karl is right that the most successful companies in the world have a high gross profit margin–and that one of the best ways to help your clients improve is by teaching them how to achieve it.
Enter the 21 Silver Bullets.
This is a framework I invented years ago, when I knew I needed a more effective way to teach clients basic business-building skills–and to communicate the value of coaching to them.
What Silver Bullets would I use to help my clients answer the questions Karl raised above? Try these on for size:
- Create a Compelling Unique Selling Proposition and Guarantee. If you want to put your clients in a position to be able to create and sell premium products with at least a 50% margin, as Karl suggests, break out the USP and Guarantee Silver Bullet. This will help clients position themselves more effectively in the market by competing on factors other than price. In the process, they’ll learn to create outstanding perceived value that opens the door for high-profit, premium pricing models.
- Update the Current Business Plan. If your client’s business isn’t talking to them, it’s almost certainly because they don’t have a Current Business Plan, complete with cash-flow projections and working capital requirements. Plus, it will provide them all the financial info they need at a glance. If this is a problem, send this Silver Bullet their way.
- Close the Cash Gaps. If your client’s sweating payroll or other expenses every month, even if their gross profit margin is okay otherwise, they have a cash-flow problem. The fix here is the Cash Gap Plan, which takes them through a series of seemingly small tweaks to things like vendor terms and payment collection processes that can pack a big punch. Often, these small things are ignored and neglected, to the great detriment of the business.
- Be Sure They’re Breaking Even. If your client’s in a particularly bad way, implement the Break-Even Plan Silver Bullet to stop the bleeding. This will help them understand exactly what they need each month to cover their costs, so that they can right the ship and put themselves in a position to begin growing again.
This is vitally important work. And now, as the year comes to a close, you have a perfect opportunity to help them get on track to a more efficient, more productive, more profitable business.
Want to see all 21 Silver Bullets in action? Get a FREE 30-day trial of our comprehensive business coaching system and learn what they are–and how to introduce them to your clients and prospects.