The concept of a Gross Profit Officer came out of a brainstorming session with a client of ours in which we looked at how they could make more profit from any given level of sales.
It made sense to us, it will probably work for you, so what is the role of the Gross Profit Officer (GPO)?
Gross profit is the difference between the selling price and the costs of making the sale. It’s often expressed as a gross profit margin i.e. if you sell for £100 and the costs of making the sale are £45 then the gross profit is £55 and the gross profit margin is 55/100 = 55%.
Raising the gross profit margin means that for every sale you make there is a higher profit and most of the higher profit will drop straight down to the bottom line.
You also make more money so cashflow is improved.
The other side of the coin is that a smaller gross profit means every sale is less valuable, the bottom line is eroded and cashflow suffers.
So it’s important to ensure your business makes the gross profit margin you want it to.
Hence the role of the GPO.
In the business we were looking at they do thousands of individual jobs for clients each year. An account manager will run the job – agree the scope, agree the price, organise the suppliers to do the job, agree costs with suppliers, make sure the job is done correctly and then make sure it is invoiced.
Gross profit is affected in several ways:
So the role of the GPO is to review these aspects of a sample of jobs or contracts with each account manager to make sure the expected gross profit margin is being made or exceeded and to learn lessons in cases where gross profit was below target.
The GPO will be a coach, enhancing the skills and confidence of the account managers so that they have more positive conversations with customers and suppliers, sharing their experience and the best practice of the organisation.
In addition, they will set a minimum standard of performance for their team and make sure that the basics of how gross profit is generated are kept front of mind everyday.
And there’s more – the GPO will look forward. They will look at several jobs that are in the pipeline which have not yet been priced and make sure that these jobs will make the desired level of profit.
Ask yourself how much your bottom line will improve or decline by if you raise or lower your gross profit margin by just 1%.
Still can’t afford a GPO?
As it happens, in the client we were looking at, the GPO role was not a full-time job. It’s something they can add in to the job description of an existing member of staff.
So don’t wait – appoint a Gross Profit Officer today!!
Michael
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We could get a lot bigger if only we sell what we sell!
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