Cost and gross margin

A deal is worth winning only if you keep something after paying for it. On every opportunity, easySales sets what you sell against what the work costs you, so you can see the gross margin while the project runs — not only once it is finished. This page explains where each figure comes from and when the margin is expected or actual.

How it fits together

The opportunity page has a Profit section. It starts with the Gross margin, written with its source in brackets — Expected, Actual or Manual — and the Gross profit beside it. All figures are before tax, in your company’s base currency. Two blocks below hold them:

• Expected, from the accepted quotations
  • Contract value — the accepted quotations, before tax. Without an accepted quotation it reads Expected value, the value on the opportunity.
  • Estimated cost — the line costs on the deal’s accepted quotations. When there is no accepted quotation, the cost typed on the opportunity is used instead and the label reads Estimated cost (manual).
  • Expected margin — the contract value less the estimated cost, as a percentage of the contract value.
• Actual, from invoices and purchases
  • Revenue (invoiced) — the issued invoices raised from the deal’s quotations, before tax. Credit notes issued on them are deducted, and cancelled invoices are left out.
  • Actual cost — supplier invoices recorded against the deal’s purchase orders.
  • Committed cost — the part of the deal’s issued purchase orders that the supplier has not billed yet.
  • Total cost — the actual cost plus the committed cost.
  • Actual margin — revenue less the total cost, as a percentage of revenue.

How it works

1. While you sell. The margin is Expected: the contract value less the estimated cost.
2. While you buy. Issuing a purchase order moves that amount into committed cost. Recording the supplier’s invoice moves it into actual cost. Both count towards the actual margin, so an order you have placed lowers the margin before the bill arrives.
3. Once you have invoiced and bought. When the deal has invoiced revenue and at least one purchase order or supplier invoice, the margin becomes Actual. A service deal whose quotations carry no cost shows Actual as soon as it is invoiced.
4. When you know better. Anyone who can edit the opportunity can select Set margin by hand (Change manual margin once one is set), enter the Gross margin (%) and a Reason. The margin then reads Manual, the change is recorded in History, and Clear manual margin removes it. People who can see the figures still see the Computed margin beside it.

Good to know

• easySales never shows a percentage on zero revenue.
• An invoice counts as the deal’s revenue only when it was raised from one of the deal’s quotations.
• Quotation lines without a cost are left out of the estimate, and the section counts them in a note.
• Amounts in another currency are converted at each document’s own stored rate. A document with no rate is not valued and shows as Not valued; it is never counted at a rate of 1.
• Cost figures appear only for people whose role lets them list all purchase orders (Purchase List at All records). Revenue needs all invoices (Invoice View at All records) and the account. The quoted figures need all of the deal’s quotations. A figure you may not see is left out, not shown as zero.
• If your role cannot see invoices, the margin always reads Expected.
• On the Opportunities list, the Gross margin % column shows the same margin as the Profit section.

Terms

• Gross margin — profit as a percentage of its base: the contract value while it is expected, the invoiced revenue once it is actual.
• Total cost — actual cost plus committed cost: everything bought for the deal, billed or not yet billed.
• Mark-up — profit as a percentage of cost. easySales does not show it.
• Committed cost — money you have agreed to spend by issuing a purchase order, before the bill arrives.

Common misunderstandings

• A high expected margin is a forecast, not a result. Check it again once purchase orders are issued.
• Revenue is always before tax. Tax on a purchase counts as cost only when it is not recoverable.
• Recording a supplier payment does not change the cost. Cost follows the supplier’s invoice.

Where to find it

Open an opportunity and find the Profit section. Purchase orders are raised from Purchase orders, and supplier invoices are recorded on each order.

Why it works this way

Margin is measured on what you sell. Gross margin divides profit by revenue, the same way your profit and loss statement does, so a deal’s figure compares directly with your accounts. Mark-up divides by cost and reads higher for the same deal: SGD 9,000.00 profit on SGD 11,000.00 of cost is 81.82% mark-up but a 45% margin on SGD 20,000.00.

An order counts before its bill. Once you issue a purchase order, you have agreed to pay it. Counting it as committed cost shows the effect on the deal while you can still act, instead of when the supplier’s invoice arrives weeks later.

Everything is before tax. GST you charge is collected for the tax authority, and input tax you can claim back costs you nothing in the end. Only what really stays with you or leaves you is in the margin.

A hidden figure is left out, not set to zero. A margin built from only the invoices or orders you can see would look precise and be wrong. easySales shows a figure only to someone who can see all of its parts.

Work faster

• Type unit costs on the quotation lines. The accepted quotation’s line costs become the Estimated cost, so the expected margin is there from the day the customer accepts. See Line items.
• Raise invoices from the quotation. Only invoices raised from the deal’s quotations count as its revenue. See Raise an invoice.
• Raise purchase orders from the opportunity. New purchase order on the opportunity’s Purchase orders tab fills in the opportunity for you. See Purchase orders.
• Close an order the supplier will not bill in full. Close purchase order releases what was not billed, so it stops counting as committed cost.
• Compare deals on the list. The Gross margin % column on the Opportunities list shows each deal’s margin with its source. See Opportunities.

Examples

Lim & Co wins the Harbour Café fit-out. The accepted quotation is SGD 20,000.00 before tax, with line costs of SGD 11,000.00. The Profit section shows a Gross profit of SGD 9,000.00 and a Gross margin of 45% (Expected): 9,000.00 ÷ 20,000.00.

Mei Tan issues a purchase order to the carpentry workshop for SGD 10,500.00 and raises a deposit invoice of SGD 6,000.00 before tax from the quotation. The deal now has revenue and a purchase order, so the margin is Actual: SGD 6,000.00 less the SGD 10,500.00 committed is SGD −4,500.00, −75%. That is not a loss; most of the work is still to be invoiced.

Lim & Co then invoices the remaining SGD 14,000.00, and the workshop bills SGD 10,800.00 after an extra shelf, so nothing is left committed. The margin is Actual: SGD 20,000.00 less SGD 10,800.00 is SGD 9,200.00, 46%.

Daniel Lim’s design-only deal for SGD 3,000.00 has no costs on its quotation. Once it is invoiced, its margin is Actual at SGD 3,000.00, 100%. He knows two days of a freelancer’s time went into it, so he sets the margin by hand to 80% with the reason “Freelance drafting, not ordered through easySales”.

A credit note after completion. One panel on the fit-out is damaged, and Mei issues a credit note of SGD 500.00 before tax on the final invoice. Revenue (invoiced) falls to SGD 19,500.00 (20,000.00 − 500.00), the Gross profit to SGD 8,700.00 (19,500.00 − 10,800.00), and the margin to 44.62% (Actual): 8,700.00 ÷ 19,500.00 = 0.44615…, rounded to two decimals of a percent.

An invoice outside the deal. The café later orders a floor lamp, and Mei creates an invoice for SGD 400.00 straight from the account, not from the fit-out quotation. It counts in the café’s balance, but not in the fit-out’s revenue, which stays SGD 19,500.00.

Common questions

• What is the difference between gross margin and mark-up? Gross margin is profit as a percentage of revenue; mark-up is profit as a percentage of cost. SGD 9,000.00 profit on a SGD 20,000.00 sale costing SGD 11,000.00 is a 45% margin and an 81.82% mark-up.
• Why does my opportunity show a negative margin? You have issued purchase orders for more than you have invoiced so far. Committed cost counts at once, so the margin rises again as you invoice.
• Why does an invoice not count in the opportunity’s revenue? It was not raised from one of the opportunity’s quotations, it is still a draft, or it was cancelled. See Raise an invoice.
• Why is the expected margin blank? No line on the accepted quotations carries a cost, or there is no accepted quotation and no cost on the opportunity. Type the unit costs on the quotation lines.
• Why can’t I see the cost figures? Your role does not list all purchase orders. Cost figures need Purchase List at All records. See Roles and sharing.
• Can I type the margin myself? Yes, with Edit on the opportunity. Select Set margin by hand, enter a Gross margin (%) between −1000 and 100 with up to four decimal places, and give a Reason. Clear manual margin returns to the computed figure.

Related

• Opportunities
• Purchase orders
• Supplier invoices
• Quote to cash