Ever heard the term “margin compression”? Put simply, margin compression occurs when the costs to make a product or deliver a service rise faster than the sales price of the product or service. Hence, putting pressure on profit margins. Causes of Margin Compression There may be many causes of margin compression… Increased competition Internal production
According to Webster’s Dictionary, the breakeven point is defined as “the point at which cost and income are equal and there is neither profit nor loss“. The purpose of breakeven analysis is to determine the point at which revenue received equals the costs associated with receiving the revenue. Simply put, how much revenue we need
The new year is well under way and many of us are working with new, leaner budgets. When we were developing these plans at the end of 2019, it seemed completely realistic that we could cut costs while maintaining our current sales volume. Now that the holiday buzz has worn off and harsh reality has
When we start working with a new client, one of the first conversations we have is about setting prices. A company’s pricing strategy (and whether they have articulated it) tells me a lot about the culture of the organization and how they make money. Here’s a video that discusses different pricing strategies as well as which
See Also: Service Department Costs Responsibility Center Profit Center Cost Center Cost Driver Transfer Pricing Transfer prices are the prices used for transactions within a company. A transfer price is an internal price. When one division of a company sells a product to another division of the same company, the price charged is called a
See also: Supplier Power Analysis Porter’s Five Forces of Competition Threat of New Entrants Buyer Bargaining Power Threat of Substitutes Intensity of Rivalry Supplier Power Definition In Porter’s five forces, supplier power refers to the pressure suppliers can exert on businesses by raising prices, lowering quality, or reducing availability of their products. When analyzing supplier
See Also: Margin vs Markup Retail Markup Example Max owns a retail store called Retailco. Retailco sells clothing as well as other items common to department stores. Max’s company has just opened their doors and is still finding a place in the market. As a result, some of the essential financial ratios have not been
How you price your products and services can have an impact on your profits. Check out the following video for our product pricing strategies: Product Pricing Strategies The following are descriptions of standard pricing strategies. Cost-Plus Pricing Pricing products and services by applying a certain standard markup percentage on top of the total cost of
See also: Standard Chart of Accounts Chart of Accounts (COA) Complex COA Number for SGA Expenses Example Chart of Accounts for Selling General and Administrative Time Saving Tip for Filing Vendor Invoices Problems in Chart of Accounts Design Too Many General Ledger Accounts Often when using QuickBooks or Peachtree accounting software the number of general
See Also: Financial Ratios Price Earnings Ratio Compound Annual Growth Rate (CAGR) Price Earnings Growth Ratio Analysis Definition Price earnings growth ratio (PEG ratio) expresses the relationship among current stock price, a company’s earning per share, and earnings expected future growth. Similar to the Price earnings ratio, the lower the PEG, the more undervalued the
See Also: Margin vs Markup Markup Percentage Calculation Retail Markup Gross Profit Margin Ratio Analysis Net Profit Margin Analysis Margin Percentage Definition Gross margin defined is Gross Profit/Sales Price. All items needed to calculate the gross margin percentage can be found on the income statement. The margin percentage often refers to sales or profitability which
See also: Porter’s Five Forces of Competition Threat of New Entrants Supplier Power Buyer Bargaining Power Threat of Substitutes Complementors (Sixth Force) Porter’s Intensity of Rivalry Definition The intensity of rivalry among competitors in an industry refers to the extent to which firms within an industry put pressure on one another and limit each other’s
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