In our last issue, we showed how TTM could be used to track sales growth throughout the year regardless of seasonal or other variations. You can use the same process to track month-by-month trends in gross margin and operating expenses.
If you are concerned about the instability of gross profit, a Gross Margin TTM is the best way to spot it. To calculate the numbers, look at monthly gross profit and sales over the past 3 years. Calculate a rolling annual total of both for each month. Then divide each month’s profit total by the same month’s sales total expressed as a percent.
If you suspect overhead is eating at your profits, take the rolling annual total of operating expenses divided by rolling sales total each month. You’ll soon see if you need to draw the line on spending.
In each case, chart your numbers and look at the trend line. If it’s moving laterally or down, you’ve got a problem. TTM helps you eliminate guesswork and excuses and start working on solutions to profitably grow your business.