Any business where the gross margin is 50% or less needs to be monitored daily. Let me explain.
Gross margin is the revenue minus the cost of goods sold. If it costs Rs 3 to buy a widget, and the selling price is Rs 5, then the gross margin is Rs 2, or 40% (2/5). Such businesses need to be monitored daily for variations in either the input costs or selling prices. Errors in purchase or sale can have a disproportionate impact on profitability.
