When a $4.8M product business came to us in March, their gross margin was sitting at 34%. For their industry, that's not catastrophic — but it was low enough to make everything else hard. Marketing spend was constrained. Hiring was constrained. The founder knew something was wrong but couldn't pinpoint where the margin was going.
By the end of May — 60 days later — gross margin was at 45%. That's an 11-point improvement on a $4.8M revenue base, which translates to roughly $528,000 in additional gross profit annually. Here's exactly how we got there.
Step 1: The Diagnosis
The first thing we did was build a product-line P&L — something the business had never had. Their accounting system tracked revenue and COGS at the company level, but not by product line. When we broke it down, the picture was stark:
- Product Line A (their flagship, 60% of revenue): 51% gross margin. Healthy.
- Product Line B (a newer line, 28% of revenue): 18% gross margin. A problem.
- Product Line C (a legacy SKU, 12% of revenue): 9% gross margin. A disaster.
The company-level 34% was a blended average that masked two very different situations. Product Line A was carrying the business. Product Lines B and C were dragging it down.
The 4 Levers We Pulled
Once we had the product-line view, the path forward became clear. We focused on four specific levers — in order of impact.
Product Mix Shift
We worked with the sales team to redirect marketing spend toward Product Line A. No price changes, no cost cuts — just steering customers toward the higher-margin product.
Supplier Renegotiation
Product Line B's COGS was 82 cents on the dollar. We identified that the primary supplier hadn't been renegotiated in 3 years. A single conversation — backed by volume data — got us a 9% cost reduction.
Product Line C Repricing
Product Line C was priced at a level set in 2021. Input costs had risen 28% since then. We modeled the price elasticity and recommended a 15% price increase. Churn was minimal — less than 4% of that line's customers.
Fulfillment Cost Audit
A line-by-line audit of fulfillment costs found $14K/month in overcharges from a 3PL that had been billing at old rates after a contract renewal. Recovered immediately.
The Results
Here's the before-and-after across each product line. The chart shows both the starting margin and the improvement achieved over 60 days.
The Lesson
The 11-point improvement didn't come from a single dramatic intervention. It came from having the right data — specifically, a product-line P&L — and then working through a systematic set of levers in order of impact.
None of these levers were exotic. Product mix management, supplier renegotiation, repricing, and cost audits are standard tools. The reason they hadn't been applied was that the business didn't know where to look. A company-level P&L hid the problem. A product-line P&L revealed it.
"I knew our margins weren't great, but I thought it was just the nature of our industry. Turns out two of our three product lines were genuinely broken, and we'd been subsidizing them with the one that was working. Once we could see that clearly, the fixes were obvious." — Founder, $4.8M product business
If your gross margin is below 40% and you don't have a product-line P&L, that's the first thing to build. The data almost always reveals a concentration of the problem in a subset of your business — and that makes the fix far more targeted than a company-wide cost-cutting exercise.
About TMA Finance: Profitability analysis and margin improvement are part of our Profitability Analysis service. Book a free call to find out where your margin is going.