Smb Margin Analyzer

Margin Analyzer

When to use

Use this when the owner suspects some offerings carry the business while others quietly bleed, or when a price/cost change is on the table and they want the effect modeled first. Good for "which products actually make money?" and "if I raise this 10%, what happens?"

Not for: publishing or changing prices (that's the owner's call, downstream); full campaign planning (use smb-run-campaign); tax or bookkeeping cleanup (use smb-month-end-prep).

Method

1. List offerings in scope. Capture unit price and units sold for the period. If data isn't connected, ask the owner for the short list that matters most.
2. Assign direct costs. Per unit: materials, direct labor, processor fees, shipping. If a cost is unknown, mark it estimated rather than skipping it.
3. Compute unit economics. Gross profit per unit, gross margin %, and total contribution (margin/unit × units) per offering.
4. Rank two ways. By total contribution and by margin %. Decision point: an item can be low-margin but high-contribution (keep, optimize) or high-margin but trivial volume (fine, don't over-invest). Flag negative-margin items explicitly.
5. Run scenarios on selected items. Model +/- price and cost changes. Show new margin and the break-even volume shift — how much volume you can lose before the change stops paying.
6. Recommend. Price, bundle, or discontinue moves with projected margin impact. Do not change prices; that decision affects customers and revenue and is the owner's to approve.

Example

Owner sells a $40 gift box (cost $31, 200/mo) and $18 candles (cost $6, 90/mo). Boxes: $9/unit margin (22.5%), $1,800 contribution. Candles: $12/unit (66.7%), $1,080. Scenario — raise box to $45: margin jumps to $14 (31%). Break-even: sales can fall from 200 to 129/mo before contribution drops below today's $1,800. Recommendation (for approval): raise boxes, promote candles harder.

Pitfalls

• Counting only COGS and forgetting processor fees and shipping — the true margin is thinner than it looks.
• Killing a "low-margin" item that's actually a top contributor by dollars, or a loss leader that drives attached sales.
• Modeling a price rise with zero demand sensitivity; always state the volume you can afford to lose.
• Treating estimated costs as facts — label assumptions so the owner can correct them.

Output format

• Period / offerings covered.
• Unit economics table: offering | price | unit cost | gross profit/unit | margin % | total contribution.
• Ranking: top contributors; thin/negative-margin flags.
• Pricing scenarios: offering | change modeled | new margin | break-even volume shift.
• Recommendations (for owner approval) with the assumption each rests on.

Reference

Core formulas

• Gross profit / unit = price − variable cost per unit (materials + direct labor + processor fee + shipping/packaging).
• Contribution margin / unit = price − all variable costs (same as gross profit/unit when only variable costs are direct). This is the dollars each sale contributes toward fixed costs and profit.
• Contribution margin % = contribution margin/unit ÷ price.
• Total contribution = contribution margin/unit × units sold.
• Break-even units = fixed costs ÷ contribution margin/unit.
• Break-even revenue = fixed costs ÷ contribution margin %.
• New break-even after a price/cost change — recompute contribution margin/unit, then solve for the units needed to hold today's total contribution: units_needed = current_total_contribution ÷ new_contribution_per_unit. The gap between that and today's volume is the demand you can afford to lose.
• Markup vs margin (don't confuse them): margin % = (price − cost) ÷ price; markup % = (price − cost) ÷ cost. A 50% markup is only a 33% margin. To hit a target margin M, price = cost ÷ (1 − M).

Processor and hidden variable costs to always include

Card processing typically runs ~2.6-3.5% + $0.10-0.30 per transaction (higher for keyed/online, AmEx, and marketplaces). Marketplace/platform fees can be 10-30% of price. Also fold in: shipping and packaging, payment-plan/BNPL fees, returns/refund reserve (model as an expected % of sales), free-shipping thresholds, and per-order pick/pack labor. Skipping these is the single most common reason a "healthy" margin is actually thin.

Gross-margin benchmark ranges (directional, verify against your own books)

Use these to sanity-check, not to set targets — a business well below its band has a pricing or cost problem worth naming; well above may have room to invest in growth.

Decision guide: keep, fix, promote, or cut

• High margin % + high contribution $: your stars. Protect availability, feature them, don't over-discount.
• Low margin % + high contribution $: volume workhorses. Attack unit cost before touching price; small margin gains scale hugely.
• High margin % + low contribution $: niche/premium. Fine to keep; don't over-invest chasing volume.
• Low margin % + low contribution $: candidates to reprice, bundle, or discontinue — unless it's a proven loss leader driving attached sales (check the attach rate before cutting).
• Negative margin: stop the bleed. Reprice, re-source, or discontinue. Flag explicitly and quantify the monthly loss.

Pricing-scenario checklist

For every modeled change state: (1) the new contribution margin/unit and %, (2) the new break-even volume and the % of current volume you can lose, (3) a demand-sensitivity assumption (best/expected/worst unit change), and (4) second-order effects — cannibalization of other items, attach-rate loss, competitor price gaps, and customer-perception risk. A 10% price rise on a 30%-margin item can absorb roughly a 25% volume drop before contribution falls; on a 60%-margin item it tolerates far less volume loss to stay ahead. Always label every estimated cost or elasticity as an assumption the owner can correct.