Generating Effective Gross Margin Analysis

How to Generate Effective Gross Margin Analysis


A critical part of analyzing profitability is being able to bridge your plan vs. actual gross margin variance when analyzing monthly and year-to-date results.  Analyzing sales variances is fairly easy, because it just falls to both price and volume.  But gross margin variance is a little more complex because it includes both cost and mix in addition to price and volume components. 

Knowing how to generate effective gross margin analysis is an imperative in today's competitive environment. See how to parse gross margin variances and take action. Click to Tweet

The SlideShare presentation below takes you through how to compute all four variance components and what they variances are attempting to convey.  In addition to computing variances, you also need to have a simple way of communicating the variance, which can be easily achieved with a bridge graph.  The presentation also displays a bridge and a simple dashboard.

SlideShare Presentation on How to Generate Effective Gross Margin Analysis

If you would like a copy of the Excel workbook used in the examples, please use the Contact Us button at the bottom of the page.  Please feel free to leave comments and likes.

About the Author
About the Author
Chase Morrison provides CFO services, utilizing Profitwyse’s 3D Growth Platform™, enabling his business owner clients to more readily achieve their goals for wealth creation and family legacy.  Contact him today to learn how your business can hit the accelerator using Profitwyse’s proven platform.

 

26 thoughts on “How to Generate Effective Gross Margin Analysis

  1. This is a very well laid out presentation on how to properly analysis changes in your business’s margin. The calculations are well laid out and easy to follow and the examples are clearly presented. I have looked for a simple explanation of the proper price/volume/mix analysis and calculations and this presentation is spot on.

    • Rob,

      Thank you for the feedback. I sent along a copy of the Gross Marin Analysis Excel workbook with the formulas for your use. If you need any assistance implement the model or any other complex financial reporting, please contact us.

      Regards,
      Chase Morrison

  2. Thanks for the clear and well-structured presentation. The step-by-step walkthrough provided is very helpful in defining and analyzing the various gross margin impacts on an individual basis.

  3. Chase, Excellent presentation of an important topic for product based businesses. Especially for businesses with moderate to larger product portfolios, “Improve gross margin” is not actionable unless the drivers are clearly understood. I’ll be referring others to this presentation.

  4. Hi Chase,

    I found your material in various websites including LinkedIn where many people are referring your introduction.
    Easy to follow step-by-step introduction with the clear definition.
    It would be very helpful if you also share your workbook so that I can ensure if my understanding is correct by going thru that workbook. Thanks again.

  5. Hi Chase,

    This is very useful information and I learnt a lot more from your introduction. Appreciate your great knowledge sharing. Let me study more from your workbook by going through that if you dont mind to share that. Looking forward to get it . Thanks.

  6. Denise Phillips says:

    Chase:

    This was a great presentation of some very useful information. It was laid out very nicely and easy to follow. Thank you for sharing.

    Denise

  7. Chase,

    Thanks for the overview. Providing an approach to help understand gross margin changes is very much appreciated and I look forward to adapting it to our business.

    Regards,

    Lynn

  8. Khaled yassen says:

    Hi Chase,

    Very good presentation for GM analysis . i found what i have been looking for . Sharing knowledge is a good thing

    hope you continue providing such good explanations.

    regards,
    khaled

  9. Roselette Borja says:

    Thank you for sharing. I am looking forward to implementing this analysis and using the workbook at my business.

  10. Hi Chase
    Thanks for this presentation.
    One of my challenges is evaluating our product groupings and product pairings with high variances in GM in a way that allows me to effectively plan targets and pricing strategy against sales forecasts.
    Looking forward to delving into this a bit deeper to apply your methodology going forward.
    Thanks again, keep in touch!

  11. Scott Breitbach says:

    Chase,

    I found your power point to be just the analysis that I was looking for to break out the key factors in analyzing our Gross Margin. I would appreciate the excel worksheets so that I could use them to build an analysis of my own. Great information and thank you for sharing.

  12. Scott Breitbach says:

    Chase,

    Thank you for the power point presentation. The information was just what I was looking for to help break out the key drivers in my companies Gross Margin. I look forward to receiving the excel worksheets if you are willing to share. Great information!

  13. Srikanth Gadepalli says:

    Hi Chase,

    Your presentation on GM Analysis is really excellent and your explanation of the various variance mix is very analytical.

    This has given me how to go much deeper in doing the GM Analysis.

    Thanks once again and look forward to getting the workbook from you.

    Regards

    Srikanth

  14. Chase—

    Thanks for the useful insights! I have been doing an entirely different pvm analysis. I think this way would really be more relevant!

    —David

  15. Chase,

    Thanks for the power point presentation. I recently transitioned from Accounting to Finance and this presentation helps me to develop a good gross margin analysis deck for management!

    Raymond

  16. This is an excellent way of presenting margin performance and will provide rich insights. I think this will definitely add value to my organisation.
    Thanks
    Rashed

  17. Excellent presentation and very useful tool to analyze margin development. That enables the companies for deep diving into sales performance

    İnan

  18. Great presentation on the fundamentals of variance analysis. I will be using this presentation to build out standard management reporting that will allow executives to focus on the true drivers of the business.

  19. Thanks for the clear and concise presentation of variance analysis. I think you just summarized half a semester of an accounting class in one powerpoint presentation! This gives me a solid foundation for the building blocks of a management report for my company.

  20. A very well structured and elaborated concept to present the most important drivers and key points a companies development! Many thanks for this very useful contribution!

  21. Ioana Cristea says:

    Very good example and explanations for this topic. I’ve read also other materials, but this one is complete and make sense. Thank you for sharing knowledge!

  22. Kyle Paquette says:

    The margin bridge or waterfall concept is one that’s absolutely necessary within the distribution space. Chase’s summary of how to analyze actual margin performance to plan is well-constructed and aims to quantify all of the pressures that are placed on margin performance. It’s only when these pressures are quantified that an organization can begin to properly and accurately direct their efforts for the purpose of achieving their plan.

    Thanks, Chase, for delivering this content and contributing to the distribution space.

  23. Dipak Raniga says:

    This is a well thought through solution, excellent in the way it has been presented and communicated which allows the uswr to logically go through. Not seen anything near to this on the internet and cannot wait to start using this. Thanks Chase.

    Dipak

  24. Ronny Stromberg says:

    Not many explanations on how to analyze gross margin variation out there.

    Thank you for clear instructions how to think and calculate the different aspects within the (often that big grey mass of questions) margin! You made my month 🙂

  25. Kamil Wantuch says:

    Hi. For some reason I keep hitting a brick wall with this analysis. I can’t find a complete resource to base my models on. I hope your workings will do the trick, especially for GM% waterfall! Thanks.

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