Operating a sales company, the gross margin percentage is often given by the reseller discount you are getting from your suppliers. If you want to increase profitability you could provide “value added services” with your products, for example maintenance contracts, on-site installations etc. In this presentation we will introduce the key ratios “value add percentage” VAP and “profitability value add” PRVA.
The operating expenses of a company have a high impact, not only on the company’s result, but also on other parameters, like profit per costs and minimum order income to be achieved. Even the same operating result and profitability of two companies could be of a different quality, because of different relations in fixed and variable expenses. In this presentation two performance indicators will be developed to monitor these important differences.
The basic equation – financial performance indicators: Profit per Cost (PPC)
With Profit per Cost (PPC) we introduce another important financial key ratio. Cost per order (CPO) together with profit per cost (PPC) let you calculate the required gross margin percentage (GMP) and the profitability (PR).
Vice versa, with a given gross margin and a targeted profitability, you can estimate the CPO and PPC.