KPIs to Increase Profits & Cash Flow
Below is an illustration of the ABC Company whose Cost of Goods Sold rose from $6 a unit to $8 a unit as it expanded its production from 1 Unit to 2 Units. A 33% increase (2/6) took its COGS from 60% of sales to 80%.
This jump from 60% to 80% is a difference of 20%, costing this company $4 , Sales * 20% ($20 * 20% )
So, instead of this company having a profit of $4, if it had kept it’s COGS at 60%, it was still breaking even with double the sales.
If the company had held its COGS to 60% as it produced more units instead of increasing it to 80%, it would have had a profit of $4.