You Can Be Fully Booked and Still Going Broke
Here’s a scenario I see all the time.
A product brand is selling well. Orders are coming in, the website looks great, the DMs are full. The founder is exhausted but optimistic. Things are moving.
Then they look at their bank account and wonder where the money went.
Nine times out of ten, the answer is the same: their gross profit margin is either wrong, too low, or both. And they had no idea.
Gross profit is the number that tells you whether your business model actually works. Not your revenue. Not how many orders you got. Not how many followers you have. Gross profit. If you don’t know yours, or you’re not sure you’ve calculated it correctly, this post is for you.
So What Is Gross Profit, Actually?
Gross profit is what’s left over from your revenue after you’ve paid the direct costs of making or delivering what you sell.
The formula is simple:
Gross Profit = Revenue – Cost of Goods Sold (COGS)
And to turn it into a percentage (which is how you actually use it):
Gross Profit Margin = (Gross Profit / Revenue) x 100
Simple enough. Except most people get it wrong in one of two ways, and both of them are costing real money.
Mistake One: Confusing Markup and Margin
This one trips up almost every product founder I’ve worked with. Markup and margin sound like the same thing. They are absolutely not the same thing.
👉 Markup is calculated on your cost.
👉 Margin is calculated on your selling price.
Here’s the same product, two different calculations:
Product costs $50 to make. You sell it for $100.
👉 Markup: ($100 – $50) / $50 x 100 = 100% markup
👉 Gross margin: ($100 – $50) / $100 x 100 = 50% margin
Same product. Same numbers. A 100% markup is only a 50% margin.
Why does this matter? Because if you’ve been pricing based on ‘I just want a 100% markup’ and telling yourself you have a 100% margin, you’re working with completely the wrong number. And for a wholesale business especially, that error can be catastrophic.
Mistake Two: Your Costs Are Missing Things
Most founders calculate their cost of goods as: materials plus manufacturing. That’s it. And they wonder why there’s nothing left at the end of the month.
Your true cost of goods for a physical product should include every direct cost to get it made and into your hands, ready to sell:
- Raw materials, fabric, components
- Manufacturing or production costs (CMT, labour)
- Inbound freight, getting it from the factory to you
- Customs and import duties
- Packaging: hangtags, polybags, tissue paper, boxes
- Your sample costs, amortised across the collection
For a service business, the same principle applies. Your direct costs are everything you spend specifically to deliver that job:
- Contractor or freelancer fees
- Software subscriptions and tools used on that project
- Travel, fuel, parking
- Props, consumables, printing
- Platform or marketplace fees
Leave any of these out and your margin looks healthier than it is. Your bank account will tell the truth eventually.
Let’s Run the Numbers: Two Examples (these are fictional)
Example 1: Luma Studio, a New Zealand womenswear brand
Luma sells a jacket wholesale at $180. Here’s what the founder originally counted as her cost:
- Fabric and trims: $38
- Manufacturing (CMT): $30
- Total ‘cost’: $68
Margin she thought she had: ($180 – $68) / $180 x 100 = 62%. Looks great!
But here’s what she was leaving out:
- Inbound freight (per unit): $9
- Customs and duties: $6
- Hangtag and polybag: $3
- Sample cost amortised: $5
- Returns and markdowns allowance: $4
True COGS: $95 per unit.
Actual margin: ($180 – $95) / $180 x 100 = 47%. Danger zone for wholesale.
Same jacket. Same price. A completely different picture. At 47%, Luma is below the minimum viable margin for wholesale. She was effectively subsidising her stockists and had no idea.
Example 2: Studio Wren, a brand photographer
Studio Wren charges $2,800 for a full brand shoot package. Here’s what she counted as her costs:
- Second shooter: $300
- Props and styling: $130
- Total ‘cost’: $430
Margin she thought she had: ($2,800 – $430) / $2,800 x 100 = 84.6%. Amazing!
What she was leaving out:
- Travel and fuel: $75
- Editing software subscription amortised per shoot: $55
- Online gallery platform fee per client: $18
- Equipment depreciation per shoot (cameras, lenses, lighting): $45
- File storage and backup per project: $12
True COGS: $635 per shoot.
Actual margin: ($2,800 – $635) / $2,800 x 100 = 77.3%. Still solid, but $205 less than she thought.
For a service business, 77% is healthy. But she was basing her pricing decisions on 84%, which means she’d been underquoting on jobs with higher travel or contractor costs without realising it.
What Does Healthy Actually Look Like?
| Business Type | Healthy Margin | Investigate Below |
| Fashion / apparel (DTC) | 70% to 80%+ | Below 60% |
| Fashion / apparel (wholesale) | 50% to 60%+ | Below 50% |
| Creative services (photography, design, etc.) | 70% to 80%+ | Below 65% |
| Retail (bricks and mortar) | 50% to 60%+ | Below 45% |
These are guides, not rules. Your specific business model, overheads, and pricing strategy all factor in. But if you’re sitting well below these numbers, that’s the conversation to have first, before anything else.
What If My Margin Is Too Low?
First: don’t panic. A low margin is a problem with a solution. You have three levers:
Put your prices up. I know. Scary. But if your costs are right and your margin is too thin, this is often the only real answer. Most creative founders undercharge, and most customers care more about quality and connection than you think.
Reduce your costs. Go through every line in your COGS and ask: can I negotiate this? Can I consolidate orders to reduce freight? Can I change packaging? Even small wins per unit add up fast at volume.
Look at your product mix. Not every product has the same margin. Work out which products or services are actually profitable and make sure those are the ones you’re pushing hardest.
And if you’re not sure where to start, the Power Hour exists exactly for this. One hour, your numbers, and a clear answer on what to fix first.
Your Action Step
This week, calculate your gross profit margin properly. Grab your last month of sales revenue and your true COGS, including all the things you might have been leaving out.
The formula:
(Revenue – true COGS) / Revenue x 100 = your gross margin %
Then check it against the benchmarks above. If it’s where it should be, great. If it’s not, now you know exactly what to work on.
FAQs
What’s the difference between gross profit and net profit? Gross profit is revenue minus your direct costs of goods or services. Net profit is what’s left after you’ve also paid all your operating expenses: rent, salaries, marketing, software, the lot. Gross profit tells you if your product or service model works. Net profit tells you if the whole business works.
Should I calculate margin per product or across the whole business? Both. Your overall gross margin tells you the health of the business. But per-product margins tell you which products are actually worth selling. You’d be surprised how many businesses have one or two products quietly dragging everything down.
My margin looks fine but I’m still out of cash. What’s going on? Gross profit is only half the picture. If your margin is healthy but you’re still cash-poor, the problem is usually in your operating expenses, your payment terms, or the timing of when money comes in versus goes out. That’s a cashflow conversation, which is a whole other post.
Know your number. Run your business on facts.
Gross profit is the foundation. Every other financial decision, your pricing, your growth plans, your staffing, should be built on top of a margin you actually trust.
If you’ve never calculated yours properly, now is the time. And if you’d like a set of eyes on it, that’s exactly what the Power Hour is for.
