Obviously I can do the math and see that it's not the same but I can't in simple terms explain why - is there a theoretical explanation that would make it easier for me to explain?

Add price of 1pp
Sales 100-->101
COGS 50-->50
GM 50-->51
GM% 50.0%-->50.5% or ~.5pp

Do not have a theoretical explanantion
but
the original GM ratio says you make 50 cents of margin for every dollar of sales
or 50%
so when you add 1 more dollar of sales and same cost you get your extra 50 cents
not a full dollar.

That's the part that I'm struggling with - that would make sense except a dollar of price doesn't cost you any more so why doesn't the margin go up by a pp?

Try this
Instead of COGS of 50 use a COGS of 20
Now your GM as a percentage looks really odd (increase of 0.2%)
and I think the point is that you need to look at the GM in dollars not as % to see your improvement in terms that are more easily explainable.

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.