Getting margin visibility as a founder
Revenue growth can hide shrinking margins. Founders who know their gross margin, and ideally margin by product or customer, can price and invest with more confidence.
Gross margin first
Gross margin is revenue minus the direct costs of delivering it, divided by revenue. Getting it right depends on putting direct costs (such as materials, hosting or delivery staff) in cost of goods sold consistently.
Then contribution margin
Contribution margin subtracts variable costs like payment fees, shipping or commissions too. It shows what each sale contributes before fixed overhead.
By product, service or customer
Breaking margin down usually requires tagging revenue and costs by product or customer in your accounting or billing system. It is often where surprises appear.
What to check
- Which costs count as direct
- Consistency of categorization month to month
- Whether revenue is tagged by product or customer
- Margin trend over recent months
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Frequently asked questions
What is a good gross margin?
It varies widely by industry and business model, so comparisons are most useful against similar companies and your own trend.
Is this founder finance guide advice?
No. Sam's List writes these guides for education. They describe common questions and processes, not advice for your specific situation.
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