Gross Margin Variability: 5 Key Factors 

20 Apr 2024

In most product based and manufacturing businesses the key to profitability lies in gross margin stability. However, achieving consistency in gross margins often feels like navigating through a labyrinth of challenges. 

In this blog post we consolidate over 15 years experience into the five critical factors that we see affect gross margin calculations, shedding light on the hurdles faced by businesses and proposing effective solutions. 

Businesses are often grappling with complexity in production or fulfillment processes; our blog looks into the five main problems (and solutions) and the crucial role of accurate cost of goods sold (COGS) calculations and robust forecasting to help ensure a scalable, profitable business.


Product Complexity and Assembly Structures:

Problem: Businesses with intricate product structures and assembly processes often struggle to maintain consistent gross margins due to inefficiencies in managing multiple product elements or assemblies.

Solution: Workhorse advocates for a streamlined approach to product complexity, enabling businesses to model workflows efficiently and optimize assembly processes to enhance operational efficiency and stabilize gross margins.

Dynamic Customer Pricing:

Problem: Dynamic customer pricing introduces variability to gross margins as businesses strive to balance competitive pricing strategies with profitability goals.

Solution: Workhorse emphasizes a data-driven approach to dynamic pricing, empowering businesses to make informed decisions that align with market dynamics and profitability objectives while ensuring stable gross margins.


Supply Chain Dynamics:

Problem: Variability in supply and demand, coupled with unpredictable logistics times, presents a substantial challenge to businesses striving for consistent gross margins.

Solution: Workhorse helps businesses navigate supply chain complexities by leveraging forecasting reports and historical data insights to optimize stock levels and enhance overall gross margin stability.


Batch Cost Variations & Cost of Goods Sold (COGS):

Problem: Managing significant changes in supplied costs by batch can be a major contributor to gross margin fluctuations, posing challenges for businesses aiming for consistency.

Solution: Workhorse provides robust batch cost management and precise COGS calculations, enabling businesses to gain control over variations and ensure accurate financial reporting for stable gross margins.


Forecasting Challenges:

Problem: Inaccurate forecasting due to uncertainty in predicting future demand, supply, and market dynamics impacts overall profitability.

Solution: Workhorse offers a robust forecasting mechanism that combines historical sales data with future transaction insights, enabling proactive decision-making and minimizing the impact of variability on gross margins.


In summary, gross margin stability is key to the financial health and sustainability of product and manufacturing businesses. By addressing the key factors influencing gross margin variability and implementing effective solutions, businesses can navigate complexities with confidence, ensuring profitability and long-term success. 


If any of these challenges resonate and you’d like to talk through how they are impacting your business and explore potential solutions, feel free to book a call. 

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