Gross Margin vs Gross Markup

Gross Margin vs Gross Markup

Here at BidClips, we have frequent conversations with our clients about gross markup and gross margin, especially as they relate to pricing. Through these discussions, we noticed that gross margin and gross markup are commonly thought of as interchangeable, which can have disastrous impacts on pricing and bottom lines.

The way this usually plays out is a client sets a target gross margin of say 50% and then calculates their prices using the formula for gross markup. When they calculate their gross margin, they expect to see 50%, but they don’t, their result is 33%—an unpleasant surprise.

Our client mistakenly believed that gross margin and gross markup are equivalent, but they are not, they are related. And because of the way they are related, gross margin will always be less than gross markup. The client’s services will always be underpriced, and they will always fall below their target margin.

We want to eliminate the confusion surrounding margin and markup by exploring how the numbers are related and how each has its own uses. Before we do that, we need to define margin, markup, and a few other useful accounting terms used when discussing margin and markup.

Important Terms

Revenue (def.) how much you sell a product or service for. It is also known as top-line because it is the first line item on a Profit and Loss Statement. Pro Tip: What you sold.

Here is how revenue might look in your industry:

Home Flat Glass Window Washing Plumbing
3 x Insulated Glass Unit Part: $600 Exterior Window Package: $1,000 Toilet Fill Valve: $100
Insulated Glass Unit Installation Labor: $400 Extra Clean Screens Add-on: $500 Fill Valve Installation: $200
Total: $1,000 Total: $1,500 Total: $300

Cost of Goods Sold (COGS) (def.) your cost to produce a good or provide a service that is ready for sale. What costs you include in COGS will vary based on your industry, but you should cover all costs that can directly be attributed to generating revenue. Pro Tip: Cost of what you sold.

Here is how Cost of Good Sold (COGS) might look in your industry:

Home Flat Glass Window Washing Plumbing
3 x Insulated Glass Unit Parts: $180 Cleaning Supplies: $100 Toilet Fill Valve: $20
Insulated Glass Unit Installation Labor: $90 Cleaning Labor: $100 Fill Valve Installation: $50
Total: $270 Total: $200 Total: $70

Gross Profit (def.) the difference between Revenue and Cost of Goods Sold. It is calculated by subtracting the Cost of Good Sold from Revenue. Pro Tip: Remaining revenue after paying COGS.

Gross Profit= Revenue – Cost of Goods Sold

Home Flat Glass Window Washing Plumbing
Revenue: $1,000 Revenue: $1,500 Revenue: $300
COGS: ($270) COGS: ($200) COGS: ($70)
Gross Profit: $730 Gross Profit: $1,300 Gross Profit: $230

Gross Margin (def.) the portion of revenue that remains after paying expenses to produce your goods or services expressed as a percentage of total revenue. Gross margin must always be less than 100%. Pro Tip: % of remaining revenue compared to revenue

Gross Margin =

Gross Profit
Revenue
X 100

Gross Markup (def.) the amount over cost you sell your goods or services for expressed as a percent. Gross markup must always be greater than -100%. Pro Tip: % over cost you sold your goods or services for

Gross Markup =

Gross Profit
COGS
X 100

Gross Margin and Markup Are Related

There are a couple of rules we should know about the relationship between Gross Margin and Gross Markup. The first rule is so important we should remember it twice.

  1. Every Gross Margin corresponds to precisely one Gross Markup
  2. Every Gross Markup corresponds to precisely one Gross Margin
  3. Gross Markup will always be higher than Gross Margin
  4. Gross markup and gross margin can be converted from one to the other using the following formulas:
Gross Margin to Gross Markup Gross Markup to Gross Margin
Gross Margin
(1-Gross Margin)
Gross Markup
(1+ Gross Markup)
Gross Markup Gross Margin
25% 20%
33.3% 25%
43% 30%
50% 33.3%
67% 40%
75% 43%
100% 50%
200% 67%
300% 75%

Using Gross Margin

Gross margin is an important number to watch for your business’s overall health because it gives a clue about how efficient and effective you are at preparing your products or services for sale. It will also inform you what portion of your revenue is retained as capital to pay for general expenses or pay down liabilities and associated interest expenses.

You should have a general idea of the average gross margin for your industry and compare it to the margins in your business to see if you are below or above the industry average.

Margins are Below Industry Average

If your margins are below your industry average, then you know your prices are too low, your costs are too high, or some element of both.

Avoiding pricing mistakes that result in prices that are too low (or too high) for your market is extremely important. To do so, you should periodically review your pricing strategy to ensure you are maximizing profits while maintaining a competitive advantage.

Sales processes can also function to drive down gross margin even if your top line is priced well. Sales reps will often take any opportunity to close a sale, and discount diving is a real challenge we have witnessed from our own reps. If you are going to offer discounts to help close sales, you need to set your reps’ expectations about when and how they can be used. Establishing gross profit minimums and rewarding sales reps who achieve profit goals along with sales goals are two great methods.

If you decide you are in line with the competition after reviewing your pricing, you should examine your costs. Call around to alternative vendors and see what they offer. You may discover you need to renegotiate your current contracts or source materials from different suppliers. If you operate a business where labor is a significant component of production, you should examine if you are being as efficient as you can with your workforce.

Margins are Above Industry Average

What if you have looked at your gross margin and realized it’s higher than your industry’s average? That’s a good thing! Right? Well, maybe not. Remember, many factors go into pricing aside from calculations and metrics. What the market can bear, or what your customers are willing to pay, will ultimately determine your final price.

Your price, coupled with your value proposition, will determine how much of the market is available for you to capture. By pricing higher than the average, you could price yourself out of growth opportunities, and your approach should be reviewed in your positioning and pricing strategy.

Using Gross Markup

Gross markup by nature does not lend itself to a straightforward analysis of what happened in your business compared to gross margin. However, it is a more natural way to envision what needs to happen to be profitable.

For instance, if you know your COGS on each sale is $100, and you have $2,500 each month in operating expenses, and you expect 50 sales, then you know you need $2,500 / 50 = $50 in gross profit on each sale to break even. That is a 50% markup, which is more comfortable for most people to envision and calculate than to recognize it as a 33% margin.

The uses for gross margin and markup discussed above lends to the idea that gross margin is an accounting function, and gross markup is a pricing function. We believe this is a narrow view because they can be equally powerful in pricing and accounting. Knowing gross margin and gross markup are different in form and use, but recognizing their relationship will empower you to use them in new and exciting ways.

How to Manage a Remote Sales Team

How to Manage a Remote Sales Team

Remote work is the future.  We at BidClips, being engaged in the home, business, and automotive service industries, know many of you are trying to adopt this new way of thinking. Since we have been operating remotely for nearly 10 years, we would like to share with you some of the tools and strategies we have used along the way.  

 

Motivations to have a remote team

You may already have your own motivations for moving all or part of your team to working remotely.  Others to consider are:

Improving productivity by cutting down on distractions

Attracting talent irrespective of location

Saving money on office space as you grow

Enabling you to work on your business without going to the office

 

You’re committed. What’s next?

1. Make a plan

Make a plan for who will work remotely and a list of the softwares you will have to implement to get off and rolling day one when you make the switch.  We’ve compiled a list of software below that we use consistently to drive our team forward.

 

2. Make sure your team has rock-solid internet

Ask team members going to work remotely about their internet connection.  Working over wifi can be unpredictable, and if you’ve tasked them with taking calls or working in programs that require solid connections this will have to be addressed.  Have each remote team member run a speed test on a site like fast.com and have them send you their results. 

If you’re having trouble, and your worker is expected to work with customers over the phone, reach out to your VOIP provider to see if they can help you analyze your team member’s setup or check out this article for some steps you can take.  Also, if all else fails, a hardwired connection to their router using an ethernet cable and usb-ethernet adapter is the best way to make the most of any internet connection. 

 

3. Get to know the tools you are going to use 

We’re going to touch on each of the tools that we at BidClips use and some highlights of how they will benefit you in setting up a killer remote team.  Go deeper with any of them and you’ll find there’s even more than what we’re surfacing here. 

 

Cloud-Based Drive, Docs & Sheets (Google’s G-Suite)

G-What?

The G-Suite is Google’s suite of apps including Gmail, Google Docs, Google Sheets, & Google Drive. You are probably either using or have used several of them at one time.   They allow you to not live or die by your laptop’s hard drive as all files stay in the cloud. Use it all for free if you don’t mind having your email read something like badgerbuilders@gmail.com.  If you want to upgrade, you can get your own domain and be off and rolling with all of the software and a next-level email like will@badgerbuilders.com. Take your pick!

What will it do for a remote team?

Google Drive allows you to set up a company-wide filing system and control who can or see or access specific files, anytime.  You can specify read-only permissions for those on your team who just need to see but not touch, and edit permissions for those who you want to work on documents alongside you.  Google Docs brings word processing into the cloud and things like memos or procedural documents can easily be shared and collaborated on with your entire team. Google Sheets is great for things like a shared part notes, inventory, or pricing and extremely useful tools can be stood up for your team with a little can-do spirit.     

How can I best use Google’s G-Suite?

Organize and share files without worrying about backing up

Collaborate on word documents or spreadsheets in real time

Keep living documents like onboarding procedures or marketing materials

Stand up pricing sheets, part notes, and more with Google Sheets.

 

Workplace Messaging (Slack or Glip)

Remember AOL or MSN instant messenger?  Well Slack and Glip are what would happen if those instant messaging platforms went on to attend Harvard Business School and got serious about making your company more efficient.  Slack gives your company the ability to have everything from the break room – oh hey Mike! – banter to the one-on-one operations-critical conversations without getting up from your chair.   It also affords your staff valuable moments to respond so they can stay productive with the task at hand.  

Who do I need using messaging?

Get your whole office into Slack, not just your remote employees.  Heck, you can invite clients and You’ll see amazing things start to happen once you have the buy-in of everyone.  When it comes to creating business chat rooms, or channels, we recommend making at least one channel dedicated to each of the following categories: 

Project / big client specific channels (invite your client to the channel if the work is collaborative)

Important Announcements (Let your voice be heard here and hold your team accountable to staying up-to-date)

General Business (everyone can talk here about what they’re seeing on the ground)

For Fun (ours is called #trashtalkandfuntimes)

 

Video Conferencing (Zoom)

Easy. Virtual. Meetings.

Zoom took the awkward step of getting everyone into a virtual meeting and simplified it.  Now virtual meeting set-up times are near zero. Having the Zoom app isn’t necessary either and anyone who can’t join with their camera can still dial-in to hear the audio. 

We rely on Zoom daily to check-in, share ideas, and be together.  Our best culture pieces are our leadership meetings and “Tribal Gatherings” which bring in our whole team (sometimes special guests) and allow everyone to see each other, catch up, and go over key business items.

Recurring meetings eliminate the confusion on when and where you’re going to meet.  Take it to the next-level with all-day meeting rooms so your team members know where they can rally with questions for one another throughout the day.    

Zoom Benefits

Bring your whole team together, easily

Share screens and computer sound for trouble-shooting and collaboration

Open virtual conference rooms for team members to access intermittently

Give presentations and record them for sharing later

 

VoIP Phone Systems (Clarity & CallRail)

Using voice over internet protocol (VoIP) gives a distinct advantage to remote teams because you can get creative with your routing while keeping your fingers on the pulse of where your calls are going.  Many VoIP systems will come with a softphone which means your remote team members can answer calls directly from their computer with a good headset. 

Though we currently use Twilio because they give you the tools to code your own phone system, Clarity is who we used for years before and who we would recommend.  Clarity’s service is unmatched and they constantly have a team standing by to answer your questions and achieve the routing you are looking for. This can be a fresh drink of water as I’ve seen owners sink hours into trying to route their own system because they just don’t want to reach out to their phone provider’s unhelpful support. 

CallRail is an advanced auto attendant system that you can place anywhere in your system to qualify customers by things like their ZIP codes and send them to different numbers based on their responses.  This works extremely well if you are trying to encourage in-shop work for certain areas, but will still send your technicians out to others. It can also pre-screen callers and give them tailored messages based on the caller’s input so that you save your team’s time of not having to explain the same thing to every caller.  

Clarity & CallRail VoIP Benefits

Clarity offers unmatched support saving you time and money

Stay on top of your calls and where they’re going

Get creative with your routing and messaging to make your team more efficient

 

Project Management Software (Trello)

Hey, did you ever do that thing with the thing I asked you about?

Project management tools are great for your projects that exist outside of the daily tasks like customer service and dispatching technicians.  Consider a project management tool, even if just for yourself, to stay on top of where you are with larger company initiatives.  

We use Trello as our repository for idea dumping, assigning of tasks to other management, and organization of all of the “We should really do that” thoughts we have.   This is another piece of software that has a generous free offering where you can add multiple members of your team and watch as tasks go from “working on it” to “done” all in a clean user interface.

Project Management Software Benefits  

Track projects you have assigned to your team

Organize your own business initiatives

Create a repository for game changing ideas 

 

Scheduling & Payroll Management (Homebase)

I’m just going to set up the team’s sch- *three days pass*…

Managing schedules can be tedious regardless of whether you have a remote team or not.  Luckily companies have seized on this pain point as well developing great looking web applications like Homebase.  These types of applications give you a lot in the way of easily publishing a schedule that your whole team can either agree to or file a complaint about (hint: the file for those is called the bin in England).  

You can easily duplicate whole weeks of scheduled hours so you aren’t starting from square one every week and you can also move shifts from one person to another by simply dragging it to the other employee.  Oh, and you don’t have to tell anyone that the schedule is up because your entire team is notified as soon as you publish a schedule.  

Schedule Management Software Benefits

Easily viewable upcoming schedules, from anywhere

Automatic team notification when a new schedule is published

Copy days/weeks/months of historic schedules for new schedules

Move shifts between team members with a click and drag

Go pro with features like clocking-in and timecard records

 

Password Manager (Lastpass)

Wrong password.  Click forgot password to…

Wrong password scenarios interrupt your day like a car driving through the front of your business.  It demands attention because you can’t do anything until you get that car out of your waiting area. Now, if you have a remote team member who shares an account login with you, not only can you both forget the password, they have the power to change the password right out from under you.  

To take back control, and share logins privileges without spilling your password, companies have developed virtual password vaults.   We use LastPass, but there are many viable options out there.

Password Manager Benefits

View all of your passwords in one vault

Share specific login authorization with your team without sharing the passwords themselves

Stay in control of all of your accounts and who has access to them at any given time

 

Sales Platform (BidClips)

Last, and certainly the best! 🙂

BidClips is a sales enablement tool for the home and automotive services industry.  It offers a host of features that help your team work remotely while still being on the same page with the rest of your operation.   A history of communication with the customer and other team members is localized to each individual service request, and cleanly organized.  Tasks are visible to everyone and can be tied to multiple steps of the sales process promoting accountability. Individual and team KPIs are updated in real-time bringing numbers into focus.  Automated tasks and notifications (including emails) go to key team members so no customer falls through the cracks.  

BidClips is in the cloud so it’s easily accessed from any computer, any time.   BidClips’ pricing also grows with your operation and doesn’t charge you by number of users.  Ring! Ring! Is that a brighter future calling? Yes, yes it is.

BidClips Benefits for Remote Teams

Organized leads with customer and internal conversations attached

Transparent sales task management raises accountability

Real-time KPIs by team member

Automated tasks and notifications (including emails) to the team member who needs it

 

Our wish for you

We hope you enjoyed this overview of getting a remote team started.  If you are interested in BidClips, please visit our home page at  www.bidclips.com to book a friendly tour or check us out on Facebook, YouTube and Vimeo.  We’d love to meet you! Instead of a summary we landed on a “Too long; didn’t read (TL;DR)” below.  Please share and comment below.

 

TL;DR

  1. Remote work is the future.  Start moving in that direction and you’ll encounter many efficiency boosting tools along the way.
  2. There are many tools for remote teams.  We use Google’s G-Suite, Slack, Zoom, Homebase, Trello, LastPass and BidClips (our sales and customer service team, Service Station, uses BidClips daily to assist shops across the country).  
  3. Google’s G-Suite, Slack, and Zoom (or similar softwares) are essential to running a remote team.  
  4. BidClips gives your whole team organized leads, KPIs on each team member, transparent task lists for accountability and does not charge for additional users.
  5. Remote work culture is galvanized by having video meetings with everyone and getting creative to make everyone know they are a valued part of the team.  

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How to manage remote sales teams