Relative Margins: Is Your Company Really Innovative?
By: Wesley Legg
Many companies tout their differentiation and innovation, yet the clearest way to determine if this actually exists is by evaluating a business’ relative margins. Having higher margins than the industry average usually denotes a competitive advantage, like having low cost advantage or having pricing power because of a brand.
Having above average gross margins indicates a business has less COGS than the industry or a superior product of service. These advantages are usually indicative of some synergy, efficiency, or innovation the business has enacted. As fun as all these buzz words are, superior margins are the actual, undisputable financial result. Margins shine through the smoke and mirrors of fancy investor presentations showing the true innovation within a business.