Margin analysis examines the different levels of profitability in your business - gross margin, operating margin and net margin - to identify where value is created and lost.
Margin analysis breaks down your profitability into layers to help identify exactly where your business makes and loses money. Gross margin tells you about pricing and direct cost management. Operating margin reveals your overhead efficiency. Net margin shows the final profitability after all costs including interest and tax. Comparing margins over time highlights trends. Comparing margins by product, customer or location reveals which parts of your business are most and least profitable. For example, you might discover that your highest-revenue product has the lowest margin, or that a particular customer segment is unprofitable after allocating overhead costs. This analysis drives better decisions about pricing, product mix, cost management and resource allocation. SortBooks enables detailed margin analysis through its AI CFO feature, breaking down margins at multiple levels and identifying the key drivers of profitability changes.
SortBooks helps with the bookkeeping behind margin analysis by connecting to your Xero account and using AI to suggest the right account for transactions sitting in catch-all accounts, learning from your own past coding. Instead of fixing margin analysis by hand, you review each suggestion, approve it, and SortBooks updates Xero, GST code included. Then ask the AI CFO about your numbers, using live Xero data.
Gross margin is your gross profit expressed as a percentage of revenue. It shows what percentage of each sales dollar remains after covering direct costs.
Net margin is your net profit expressed as a percentage of revenue. It shows what percentage of each sales dollar becomes actual profit after all expenses are paid.
Contribution margin is the amount remaining from sales revenue after deducting variable costs. It shows how much each sale contributes toward covering fixed costs and generating profit.
Profitability measures your business's ability to generate profit from its operations. Key metrics include gross margin, operating margin, net margin and return on equity.
COGS represents the direct costs of producing or purchasing the goods your business sells. It includes raw materials, direct labour and manufacturing overhead but not selling or administrative expenses.
Connect Xero, check the AI's suggestions and approve the changes. SortBooks updates Xero for you.