The three margin lines
- Gross margin — revenue less direct costs of delivery
- Contribution margin — gross margin less variable overheads
- Net margin — after all overheads
Each tells you something different. Plan pricing on gross/contribution. Plan strategy on net.
Cuts to run
By product/service
- Calculate gross margin on every SKU or service line
- The bottom quartile usually drags blended margin down
- Action: discontinue, reprice, or move to lower-touch delivery
By customer
- Calculate fully-loaded margin per customer including time-tracked service costs
- The bottom 20% of customers often produce 0–5% of profit
- Action: reprice or politely transition them
By channel
- Revenue × take rate on each channel (direct, agency, marketplace)
- Compare effective margin after CAC and fulfilment cost
- Action: reweight marketing spend to the highest-margin channel
By delivery method
- Compare margin on in-person vs digital, custom vs templated, retail vs trade
- Often a 10–30% margin gap between methods you can shift mix toward
Common margin leaks
- Scope creep on fixed-price work — track hours even when you don't bill them
- Discounting that's never reviewed
- Old products kept "for completeness" with negative contribution
- Marketing channels measured on revenue, not gross profit
- Bank/card processing fees creeping above 3%
Premium clients get a margin analysis as part of their annual planning cycle.