Financial Guide for SMEs - SME Corporation Malaysia

Financial Guide for SMEsIf we put some numbers to this, we can see the results in the box below:Adam’s Computer BagsAdam wants to discount his bags by 5%. To maintain gross margin of 40%, hewill need to increase sales units by 14.3%.Adam is currently selling1,000 bagsIncrease volume by 14.3% = 1,000 + (1,000 x 0.143) = 1,143 bagsTo maintain gross margin (and achieve target profit), Adam will need to sell1,143 bags if he sells at 5% discount.The same would apply to a service business; if selling price is cut by 5% and thenet margin is 30%, sales will need to increase by 20% to ensure all operatingcosts are covered.44Chapter 2-5 p22-65 Eng.indd 448/15/11 5:01:56 PM