Here is Margin Analysis spreadsheet I recently put together. It shows the amount of new sales that will be needed if a bad debt were to occur at a certain price point with a certain margin.
Have you recently completed a Margin Analysis on your sales to potential customers? Or even on purchases from your suppliers? If not, or if you would like to know what this means, read on.
Margin is the amount of profit you make on a sale. If you sell $10,000 to a customer and your margin is 2%, you are making $200 on that sale. That is not much money to be made, so from a credit perspective, I would recommend being tighter on the risk profile of that customer.
If you sell $10,000 and make $1,000 profit, you have a 10% margin and can afford to take a bit more risk as your profit is higher.
This concept is easy to grasp but I find many businesses do not take this into consideration when making a sale and more importantly, selling on credit.
Make sure to factor this into your next selling decision. Not all customers are created equal.