Sales are usually on the radar at most companies.  The president will have it at her fingertips. 
It is likely to be on management dashboards or more traditional reports that are seen across management.

 

However, it often is not the same with margins.

 

That wouldn’t matter if all sales items returned the same margins.  However, that is usually not the case.  At the pharmaceutical firm where I was CFO, our margins were dramatically different.  New products could have margins as high as 98% while more mature items could fall in the 15-20% range.

 

While you might not have as dramatic a swing of margins like we had in the pharmaceutical business, if you are like most companies, your margins can vary significantly:

 

·         Some items might be newer and carry a price premium. 

·         Some items may be made in larger quantities and cost less per unit or service hour.

·         Some items you may make yourself, while other items have more outsourced parts.

·         Some items may be more mature and subject to pricing pressure in the market.

 

In other words, not all sales dollars are created equal.

 

Therefore, just monitoring sales may not be the best gauge of how you are going to do during the month.  $5,000,000 in revenues might bring in $3,000,000 in margins or $2,000,000 depending upon the services or the products in the mix. 

 

At the pharmaceutical firm, we had margin as well as revenue reporting.  From that we had a very good handle on how the month end would turn out and what we needed to move more of in case margins were running light.  We also used this to make decisions about pricing or whether to keep certain items in the product line.

 

A health products client of mine had just revenues in their management dashboard reporting when I first came on board.  I added margins to the dashboards later on.  Before the general manager would think he had a great month and then be surprised when it turned out to be light margins.  With the new dashboard reporting, he was able to see why some months were running shorter than others.  I also showed them how they were actually losing margins in one area- shipping and handling costs- which they took care of through a pricing change.  Later on, they moved to private labeling some of their products to increase the margins by 15 percentage (basis) points or more.

 

Put the focus on margins not just revenues.  You might uncover some different ways to operate and at the very least, have a better feel for how you are doing during the month.