I walked into a meeting with a client who swore his business was thriving.

"Revenue's up 40% year-over-year!"

He couldn't understand why his bank account didn't reflect this revenue growth.

"Show me your gross profit percentage," I said.

He stared blankly. "My what?"

This number—arguably the most critical for profitability strategies—was completely off his radar.

Gross profit percentage measures how much of each revenue dollar remains after covering direct costs. It's your efficiency at converting sales into profit.

And it's where businesses quietly bleed to death.

This client's gross profit percentage had plummeted from 35% to 22%. Despite selling more, he kept less of each dollar—creating the illusion of growth while actually shrinking profits.

The culprit? Discounting to win new accounts without considering the margin impact.

He wasn't alone. Of the Vital 5 numbers (Sales, Gross Profit, Gross Profit Percentage, Net Profit, Cash Balance), gross profit percentage is consistently the most misunderstood.

Why it matters:

• A 5% drop in gross profit percentage on $1M in sales = $50,000 vanished
• It signals pricing power (or lack thereof)
• It reveals hidden efficiency problems
• It predicts cash flow issues before they become critical

The fix was strategic, not complicated:

• Segmented his customer base
• Identified highest and lowest margin clients
• Adjusted pricing on low-margin work
• Fired two clients bleeding his resources

Three months later, sales decreased slightly but earnings improvement hit 34%.

The lesson?

Growing sales means nothing if your margins are silently eroding.

Know your gross profit percentage. Watch it like a hawk.