Kevin Stecko is the founder and president of  He's been operating the business since December of 1999.

Gross Margin Can Be VERY Misleading

I worked as a sales engineer for a company that sold industrial automation equipment.  Instead of having a price list for basic hardware like screws they had us apply a formula to make sure the Gross Margin was where they wanted it and everything worked fine for years like this.

Then the Industrial Engineers did a great job and figured out how to significantly decrease the cost of much of the hardware.  So in the past a screw that cost $5 to make and had a 65% gross margin would sell for $14.29.  Now drop the cost to $0.50 and apply the same formula (divide cost by 0.35) and that screw sells for $1.43.

Selling 1000 screws prior to the cost decrease made a gross profit of $9, 290.  Selling 1000 screws at the new cost with the same gross margin the gross profit became $929.  So we can see that Gross Margin is a deadly thing to use without considering all the facts.  Consider also that we haven't factored in the fixed operating costs as well as the variable costs to get the screws shipped.  It's likely that the company was losing money selling hardware until they figured out what happened and made a price list for it.  


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