Section 3: Understanding and controlling your gross margin / direct costs

Gross profit / margin shows the profit from sales deducting the cost of goods. It is important that you understand your required margin to maintain profitability.

There are several aspects that can affect your gross margin these include:

• Sales price: If you are charging low prices that aren’t generating enough revenue then you will see a direct impact on your margin which will result in an unprofitable business.
• Discounts: You need to be aware of the impact on your margins when adding a discount to your services, it is important to review your pricing module and ensure that you are not heavily discounting which is making your business unprofitable as this will have a long term effect on your performance.
• Labour charges: Fees for services paid must be reflective of the price you are charging. The most profitable option is to work on a commission fee basis to ensure you are only ever paying for services delivered. This may not always be possible so it is important to ensure you price your services reflective of all labour charges including unproductive time.
• Product/consumablepurchase price: Establishing relationships with suppliers will be fundamental to controlling these costs. Discounts given are often based on volumes ordered, therefore ensuring you are consistent with the products offered and do not have products competing with others in your clinic will often drive volumes and allow you to secure favourable order discounts.