Profitability Exposed - The (not so) Gross Margin

In the marketplace for talent, it can feel like riding a supply and demand wave, exchanging our time, skills, and hashtag-laden posts (yes, I'm looking at you, LinkedIn enthusiasts) for some kind of return.

We are all looking for value. Finance folks with large glasses and larger Excel spreadsheets are always on the lookout for it. It’s our North Star, our Holy Grail, our 'Swipe Right.'

We chase it, we quantify it, and we try to make decisions around it for better outcomes. One way we do this is through understanding profitability. But what is profitability? And what’s margin got to do with it? So, let’s explain it like it’s a dating story.

So, will it be love at first sight? Will we ghost after the main is served? Or will it be a hot mess for dessert. Let's find out.

The (not so) Gross Margin – The First Encounter:

Gross Margin = ((Revenue - COGS) / Revenue) x 100

There's a palpable buzz, a whisper of wonder in the air. It’s the first date. The opening act, where you lay your cards on the table… but only the ones you want seen.

This is the Gross Margin of dating – a calculation not of chemistry, but of basic compatibility. It’s financial flirtation. Sales revenue batting its eyelashes at the cost of goods sold (COGS), hinting at what might be in store after the show.

You’re dressing for the first date like you're balancing your company's books. You reach past the skeletons in the closet and pick an ensemble that whispers ‘casually cool and confident’, not one that screams 'co-dependent and barely coherent'. It’s the delicate dance of first impressions, where every move is a thrill but probably requires a risk assessment (mining folks I'm looking at you!).

Do you dive deeper into the numbers? It's a crucial decision point. Do you proceed to the next date or close the ledger and say, "Cheque, please!"? Operating Margin – The Sixth Date: Okay, this is not on the label.

Operating Margin = (Operating Income / Revenue) x 100

We are, deep into the dating game now where the 'new car smell' of romance starts to fade. You begin to uncover the reality of each other's day-to-day quirks. You're David Attenborough in the jungle of your potential partner's habits.

Missing coffee turns your sweetheart into a grizzly bear? Noted. Weekend calls go unanswered because he's on “Call of Duty” with his mates? Got it. This is the rhythm of your would-be other half, laid bare in all its glory – or gory, depending on your pill or poison.

For businesses, this is where operational costs strut onto the stage, doing the tango with revenue. Hang on, have some variable costs transformed into fixed and demanding their own dance off? Who let ‘Other Expenses’ in here and what do they do?

You're weighing it all up, furiously doing the mental math: Can I handle this for the long-haul, like the 3-year Optus mobile phone contract, you just signed the day before their network went down?

You've gotten a VIP backstage pass to the show but still deciding if you're in for the encore or ready to sneak out the back door during intermission. What do you do?

Net Profit Margin – The 'Meet the Parents' Episode:

Net Profit Margin = (Net Income / Revenue) x 100

Wow, you made it this far. They must be keeper…

You’re at the grand finale of the dating saga. You’re stepping into the Colosseum with lions on one side and your potential in-laws on the other. It's the ultimate 'all-in' moment. Net profit margin takes centre stage and calls in those two unsavoury characters – taxes and interest.

But the only interest you’re uncomfortably worried about is the interest on that couch you bought together with a pay day lender but only one of you sits on it (hint - it’s not you).

This is when you discover if your significant other has been hoarding not just shoes but a whole other secret family? It's the make-or-break point that determines if the juice (the romance) is worth the squeeze (the in-law interrogations).

If your partner's dad casually suggests a lie detector test in the basement after dessert, that’s the cue to pretend a bathroom break, call an Uber and get the hell out of there.

This is the moment of truth. You have to decide if this relationship is a profitable venture for your health and sanity, or if you're about to invest in a crypto Ponzi scheme.

Conclusion You've done a runner. Thank God, you got the hell out of Dodge. Good for you. You flirted with Gross Margin, held hands with Operating Margin, before the slap-down from the formidable parents of Net Profit Margin had you curled in the fetal position sobbing to yourself repeatedly 'it's got no terminal value! it's got no terminal value...'

You're safe now. Like any courtship, it's had its moments of revelation, plenty of reservation and yes, a lot of awkwardness.

We've demystified the digits, polled the percentages, and maybe, just maybe, fallen a little bit in love with the poetry of numbers.

So, what do you think? Is seeking profitability like a love-struck Romeo with a penchant for Excel spreadsheets, a worthy metric? Or is margin, really a case of ‘much ado about nothing’?

Join the conversation and comment below!