How much money does your business spend to create the revenue that sustains it? Or if you prefer, what is your Cost of Goods Sold to Revenue ratio?
It’s something that business owners should carefully track regularly and is an excellent indicator of how your business is doing.
An increase in your Cost of Goods Sold to Revenue ratio can be a red flag that costs may be eating into your profits or that revenues may be dropping.
It can tell you how well you control your inventory, whether your products are priced right, and alert you to inconsistent portioning or an increase in raw material costs.
It can even help identify a shrinkage problem.
If you aren’t currently doing this, then hit us up; Sherman Oaks Accounting & Bookkeeping powered by One Source Services, Inc. can show you how to do it with information from your inventory and invoices.
Or, if you don’t want to deal with it then we can do it for you and regularly report our findings in language that makes sense to you.
What is your Cost of Goods Sold to Revenue ratio goal? Do you want to be at 65%? Maybe below 50% if your business is in a more expensive market?
Standard ratios are determined in large part by your region and business model. They can vary a lot from business to business and are chiefly determined by how much something costs to produce versus how much it sells for.
Your accountant can determine your target number and so can the professionals at Sherman Oaks Accounting & Bookkeeping powered by One Source Services, Inc.
If you truly want to be on top of things, then you can also regularly compare your theoretical CoGS (what should have happened) with your actual CoGS (what really happened) and focus on closing the gap between them.
However you look at it, the Cost of Goods Sold to Revenue ratio is a critical element for analyzing the general health of your business.
Consistently calculating this ratio for each category of goods can empower you to make valuable decisions and increase your awareness of how well your business is being managed.