Margin4 Jan 2019 09:30
And a Happy New Year to you Bern.
More than happy to talk profit margins with you, it's a matter that has been of vital concern throughout my working life.
A company buys in a product from a manufacturer, obviously they must decide what the selling price should be. When I get a VAT or Rev check, that's the first question they ask, because the difference between the two prices is the gross profit. The answer is not that simple, being "it depends who is buying it from me". Take the cost price, treble it, and you have a 66.6% GPM, and, broadly, that appears to be how the initial profit was calculated by Provexis. Selling in small quantities to website buyers it's a fairly normal aspiration, although it can be distorted by offers throughout a trading year. The latest development for Fruitflow + O3 , H&B, brings another margin in to the equation, a trade sale, in this case to a very large an powerful retailer. Firstly, in order to take the product on, there would have been demands, i.e. extra discounts for initial stock, for promotion, some big companies even levy a charge to be listed as on of their suppliers. All of those have the effect of decreasing gross profit margin at the outset. Receipt of marketing support from DSM validates my assumptions in that respect.
Ongoing, the price that Provexis sell to H&B at will be much less than the retail price, it has to be for H&B to make a profit themselves. Again that adjust Provexis's gross profit margin downwards on a permanent basis, so your calculation have to be reset to recognise that. In fact, should H&B find it desirable to order in greater quantities, they may want an even better price, and, if they find it to be not a good seller, they may demand a better price to keep it on. Another potential reset of the gross profit margin.
On the in-cost side, Provexis have made the first move to improve margin on the supply side. The launch stock was bought in from DSM, whereas the new batch with the revised packaging was bought in direct from the producer, improving the cost of supply. Scale of production being vital, the larger the batch produced, the lower the in cost, giving the reseller options to either reduce selling price, or to make more margin. Hence my comment that more funds would be needed in the scenario that larger inventory would be held.
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