The KPI that will assist you with measuring and improving your profitability include:
- Revenue Growth Percentage
- Gross Margin Percentage / Direct Costs Growth
- Earnings Before Interest and Tax (EBIT) Percentage
- Net Profit Percentage
Using revenue and prior period revenue to create the percentage and monitor your performance.
Ideally your revenue should be growing faster than your direct costs. If this is not the case consider your:
- Pricing – are you under charging for some services and / or products?
- Direct Costs – Are you paying too much for your supplies?
If your costs are increasing at a greater rate than your revenue this will not be sustainable.
Your EBIT is affected not only by your gross margin but also your overheads. Typically, your overheads are fixed and your direct costs (what contributes towards your Gross Margin) are variable.
By having a greater understanding of your fixed versus variables costs you will get a better idea of what your break even point is.
If you would like to discuss further please contact us:
McNamara & Company - Chartered Accountants, located minutes from the Melbourne CBD
www.mcnamaraandcompany.com.au/contact-us
Phone +61 3 9428 1062
Email admin@mcnamaraandco.com
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