Why Your Food Business Might Need 70% Product Margins
(Listen on Apple or Spotify. Full transcript below.)
If you've been following my podcast, you might have noticed something unusual in one of my recent episodes. I recommended that a client aim for 70% product margins - significantly higher than my usual 51% minimum recommendation.
This sparked a question from a curious listener: Why such a high target? Was this just a one-off situation, or could my food business need similar margins?
Today I'm sharing a glimpse into my thought process behind these recommendations—but to get the full breakdown with all the actionable insights, you'll want to tune into the complete podcast episode.
Beyond the Basic 51% Rule
For years, I've talked about the importance of maintaining product margins above 51%. The logic is straightforward: at 50%, you've only generated enough money from a sale to make one more unit of your product. That additional 1% gives you a sliver of profit to put toward operational expenses or growth.
But here's what many food founders miss: 51% is the absolute minimum for sustainability—and depending on your specific business model, you might need much more.
The Hidden Layers in Your Gross Profit Margin
Think of your gross profit margin like an orange. From the outside, it looks like one cohesive number on your P&L. But when we "pop it out" and examine what's inside, we discover multiple segments that tell a much more complex story.
In the podcast episode, I walk through my "orange slice method" that reveals:
How your product margins differ across various sales channels
The critical difference between "core COGS" and "other COGS"
Why your blended margin might be deceiving you
How “contribution margin” differs from gross profit margin, and why it’s a critical metric for your food businesses
This visualization technique has helped countless food founders finally understand why their seemingly decent margins weren't translating to actual profitability.
Why Standard P&Ls Are Setting You Up for Failure
Your P&L can help you make strategic business decisions, but it wasn’t designed that way —it was created for tax purposes. This fundamental misalignment means food founders are often working with financial reports that hide the very insights they need most.
For instance, did you know that as standard practice many costs directly tied to selling your product don’t appear in the COGS section of your P&L? Things like:
Shipping fees
Farmers market booth rentals
Storage and warehousing costs
Sales commissions
3PL fees
These "other COGS" can silently drain 10-15% from your margins before you even start covering operating expenses. But if they're scattered throughout your P&L, their collective impact remains hidden.
The Real-Life Success Story
The proof is in the pudding, as they say in the food world. In the full podcast episode, I share how businesses have implemented these principles and:
Doubled their monthly profits year-over-year
Dramatically improved annual profitability
Identified and eliminated inventory that was bleeding money through storage costs
Optimized their product mix based on true margin contribution
This wasn't achieved through some revolutionary new marketing tactic or by slashing quality—it was the result of clear-eyed financial analysis and targeted adjustments to their product margins.
Finding Your Perfect Margin Target
While I can't tell you exactly what your specific business's margin targets should be without analyzing your unique costs (that's what my DIY Profit Assessment tool is for), I can tell you this:
The right product margin for your food business depends on much more than just ingredients, packaging, and direct labor costs. It must also account for all the expenses involved in storing, selling, and delivering your products to customers.
For some businesses, that might mean aiming for 60% margins. For others—like my client from the podcast—it might mean targeting 70% or higher.
Ready to Discover Your Optimal Margins?
The insights I've shared here are just the beginning. In the full podcast episode, I break down:
The step-by-step process for analyzing your true margin requirements
How to calculate your contribution margin (an often confusing term that is essential for understanding profitability)
Practical strategies for improving margins without compromising quality
Common pitfalls that cause food businesses to underestimate their margin needs
If you're serious about building a profitable and financially sustainable food business, understanding your optimal product margins isn't optional—it's essential.
Listen to the full episode now to discover exactly how to determine the right product margins for YOUR unique food business model.
___________________________________________________________________________________________________________________________
Episode Timeline
00:00 Introduction and Podcast Goals
02:09 Listener Question and Profit Margins
05:57 Understanding Product Profit Margins
12:12 Blended Margins and Contribution Margins
18:14 Analyzing Other COGS
23:58 Advertising Costs and Their Impact
29:54 Real-Life Case Study
35:57 Tools for Financial Clarity
41:46 Community Engagement and Conclusion
Full Episode Transcript
You're listening to the Good Food CFO Podcast. I'm your host, Sara Delevan, and with us as always is our producer, Chelsea Stier. Chelsea, what are we talking about today?
Listen, Sarah, before I answer that question, I want to remind everyone listening of our big goal here on the podcast, which is for this show to reach 1 million food founders. And there's a couple of ways that those listening at home, at their desk, or maybe working out like on the bike or something can help us to reach that goal. Right? And that is by sharing this episode.
If you have food founder friends out there, send it to them. This is a good one. This is going to be a really impactful episode. Rating this podcast wherever you listen. And then I love when you feel compelled to leave us a review, especially on Apple. It really does help this show get in front of more food founders and for us to reach that goal.
Hey, Sarah, before we get into your question and talking about today's episode, I want to talk directly to the viewers here on YouTube for just a second. Okay, listen, we have a really big goal here on this podcast, and that is for this show to reach 1 million food founders. And we do have a long way to get there to reach that 1 million founders, but
It starts by taking small steps and the first step on the road is by reaching 500 subscribers here on YouTube. So you can subscribe just by clicking the link down below and it's really one of the number one ways that you can help us get in front of more eyes and find the founders that need a show like this. So help us reach our goal, subscribe and click on for updates so that you find out when we release more shows like this.
Okay, Sarah. So I think that before we get started on the main episode, we really need to talk about it before we jump in.
I agree. So to set things up for listeners, this episode is the result of receiving a question from a listener. And specifically, it was a question related to episode 118. If you don't have numbers where you like listen to your podcast, which some people do and some people don't, the episode was called The Profit Assessment, how one founder doubled their monthly profitability and steps you can take to do the same.
Will you share the question with our listeners, Chels?
Yeah. So the listener asked, they actually said first, you mentioned something briefly in the episode that was really interesting. You mentioned that you need or that this company needed a profit margin, and I believe they were talking about their product profit margin, that was way higher than what you normally talk about, which is that 51 % threshold.
In this episode, you specifically mentioned a 68 % product profit margin. And they're asking, can you dive deeper into this? I'm really interested to understand better how you came to this higher target.
I love this question so much and I really, really appreciate this founder reaching out to us for more clarity because as I've said many times in other episodes, some of our core profit margin episodes, our product margins are like sort of the beginning, right? A core component of having a cashflow positive business, having a financially sustainable business. But there is more that goes in
to that than just the product margin. There's going to be terms here, some financial terms, some that you've heard me say before, some that you have not for sure heard me say before here on the podcast. We're going to do our absolute best to define, explain, clarify all of those. We want you to
just take this episode kind of slowly, come with us on this journey. The goal of this episode is to answer this listener's question and also to clarify and explain what you as a founder can do to understand your finances better, to have clarity around what the right product margins for your business are and sort of how to go about figuring that out and how to make
really informed decisions for your business. Flat out, I'm going to tell you that y'all are not set up for success in terms of like how P &Ls are structured because they're not meant for making business decisions really, right? They're structured for tax purposes, but we utilize them because they're the best tool we have, right, as the foundational piece of information for making financial decisions. So we're going to talk about, you
what we can glean from them, what we can't, some other ways that we can glean the kind of information that we're going to be diving into today. And we're going to try to simplify it for listeners so that they have some actionable things that they can do for their own businesses. And so that's our goal today. But you are definitely going to hear us say a bunch of financial terms. Chelsea, I know that you will stop me and you will have me clarify. Yeah.
I was just going to say that is like, don't worry, I'm here. I'll play the noob in this situation and make sure that all the questions are asked because yeah, there's some things that I'm not going to understand for sure.
Yeah. And honestly, think, Chelsea, that we just sort of like slide right into the episode. Ready to take control of your finances? Want guidance tailored to the specific goals you have for your business and a supportive environment to build your financial confidence? Join me in our CFO office hours. You'll get expert financial support at a fraction of the cost of hiring a consultant. Each session, I'll help you tackle your specific challenges and opportunities.
Breakthrough roadblocks and build confidence in your path to profitability. Visit thegoodfoodcfo.com and click on coaching to learn more and reserve your spot in our next session.
Okay, Sarah. So I do want to take just a second and remind everybody about the question that we're attempting to answer today in this episode. And again, it was from the podcast where you talked about the business that was able to double their profits year over year, like in the month of July. And one of the things that you briefly mentioned in that episode was that they needed a product profit margin
that was well above what you generally recommend is something over 51%, right? That their product profit margin was at 68 % is where you advise that they be. This listener that listened to that episode came and asked, they came back and asked if you would dive deeper into this and really break down how you came to this higher target.
Yeah. So I want to clarify a couple of things. So number one, they're absolutely right. The minimum product margin for that business that was recommended was 68%. We really liked 70 a lot better. So there was a bit of a range, right? Not every single product had the same margin. Number two, I want to talk about that 51 % number. We talk about gross profit margin needing to be above 50%.
The reason for this is because a 50 % gross profit margin means that when you sell a product, you've generated exactly enough money to create one more unit of that product. There's no other money that has come in from that sale that could be used for operating expenses, for example, or to increase your production of units. If you want to dive deeper into that core concept, you can go to
episode 56, which is our Rethinking Cash Flow episode, which is really all about margins and how margins affect your cash flow. And then listen to episode 100, which is again, all about margins and how different margins will have an effect and an impact on both your cash flow and your need to take on debt. Those are really great sort of core episodes to listen to before you dive into this conversation. So go back there.
if you haven't listened yet. If you have, then you're in the right spot and continue to listen to this. The other thing I want to say is that that number 51 is my recommended minimum. Because 51 % gives you 1 % gross profit to do something else with, to utilize for your operating expenses or to maybe put in the bank to grow your production in the future.
So 51 % is my way of saying above 50, but your product margins could be in a range of places from 51 % and above. The next thing I want to say, just sort of like just bring clarity here, is that there's lots of different types of profit margins. And we're going to be talking about a lot of them today.
Right now, we've been talking about product margins. Then there's something called a blended margin or what we're often going to refer to just simply as gross profit margin. And that is… And let's lay this out for everybody. So you have a product. Let's say you have one product. That product is going to have a product margin. If you sell that product in three different sales channels…
it's going to likely have three different margins because in each of those channels you may be selling at a different price point. For example, D to C you might receive $10 for your product. When you sell into wholesale you might get $5 for your product and when you go into distribution you might get $3.50. So the calculated margin for that same product is different across all three channels. So when you look at
the margins for that product as a whole, we call that a blended margin or your overall gross profit margin. To take it one step further, because most businesses have more than one product, you may have multiple products that could sold in multiple channels. And all of those margins are going to come together in a way to create a blended margin as well, which we're going to refer to as
the gross profit margin. How does that all sit and sound,
I'm with you. I want to clarify a couple of things here. So when you're talking about like at this step, right, whether it's the product profit margin, the blended product profit margin, or the blended gross profit margin, are we looking at the same calculation for all of those in terms of the core cogs coming out of the revenue of that product?
At this point in time, yes. Okay. Okay. And that's where things like could get complicated and where we want to be really clear. So thank you for asking that question on what we're talking about. Your product has a specific margin in each channel that you sell it through. And as a whole, it will have a blended margin across all channels on the product level. When we
You're never going to see your product margins on your P &L. Yeah. On your P &L, the gross margin that you're going to see is going to be the blended margin of all of your products along with some other cost of goods sold that will hit your P &L as well. And I'm going to dive deep into and define what those other COGs are.
But for now, at this point in the episode, we want to be very clear that we have product margins, we have blended product margins across multiple channels, and then we've got some other cogs that will come into play that will create our overall gross profit margin on our P &L. Got it. Okay. So in the intro, I mentioned that founders are not truly set up for success with
Okay, I think I'm with you so far.
their profit and loss statement. And so some of the things we're going to talk about today, you are not going to see explicitly on your P &L. And the way I described it to you, Chelsea, sort of as we were prepping for this episode was, you know, if you are looking at like a chart or like an illustration of something, like let's say, I don't know what's a good example, but an orange, right? So say you have a picture of an orange and it's a whole orange.
And then you have this like pop out that shows you like an orange is made up of different segments of orange slice. And then the skin is wrapped around the top. It kind of shows you what's inside the orange. I'm picturing that today when we're talking about gross profit margin, the one that you see on your PNL. We're going to take that number and we're going to pop it out and show you
the different elements that actually go into that number and why it's valuable to break it apart and look at each of them individually and what value that can add to you as a founder and your ability to make informed decisions.
In order to see that breakout, there's an external tool or spreadsheet that you're going to have to use or maybe some side calculations to see the numbers that we are talking about today. I want to be very, very clear about that. The tool we use to do it is our profit assessment, right? And so we have the DIY profit assessment on the GoodfoodCFO website. And then we also have the Done4U CFO profit assessment where we do it for folks. Some of the terms.
that I'm going to share today are interchangeable. We use a term on our profit assessment that is a very simplified terminology because that's the way we roll. In the industry, there's another term that is used. I'm going to try to use both to make sense of things for people. I'm going to lean on you, Chelsea, to just make sure that I...
and making sense and staying clear the whole way through. Because I don't think there's a need to overcomplicate things, but when people are hearing a specific term, how in the industry and in the world, I want them to know what that really means.
that can complicate things, right? If you're like, wait, I haven't heard of this thing before. What exactly are you talking about? I think it is good to know also known as, right? I love that. Okay.
Yes. Yes. So the things we've talked about to be aware of so far, like one of the big ones is the many types of margins. So we've got product margin, we've got like channel margin, we've got the blended margin, right? And then we're going to dive even deeper into that. We're going to be introducing a new concept here. Again, in an effort to simplify things, I don't use
like sort of the industry terms all of the time. And I have a bit of a concern that that's going to confuse people here. But again, we're going to do our best when we're introducing this new term and this new concept to help you guys today. So we're going to do our best to keep it all clear. And again, this is all designed to give you the best and sort of deepest insights into your business humanly possible. Anything else we should touch on Chelsea before we continue.
talked about the PNL, right? And that I think that, yeah, I think we're good to keep going.
I'll share the concept first, okay? So in the business world, there's something called contribution margin. I've never, that's the term I've never used here on the podcast. And to be quite frank and transparent as always, I never really saw the value in it because it's hard to see on your P &L. And I always found it to be kind of
confusing, like the way that people define it. And then I realized, it's because the way that people are defining it is not specifically for a food business. And actually, I've been using contribution margin for a very long time. I just happen to call it other cogs. So I'm going to walk through the P &L, sort of from top line down, down, I'll say.
And talk about where this idea of other COGs and contribution margin come in, what they mean, how we can use them. Sound good? In fact, right? Exactly. Yeah. Okay. So at the very top of our P &L, we have revenue. Now, your revenue might just be one total number. You might be able to see revenue by channel, right? But there will be a total income line on your P &L. That is your revenue number.
how they impact.
And then on your P &L, you have something called gross profit and it's going to show up as gross profit dollars. And then you can also calculate or have QuickBooks, for example, show you that as a percentage. Here's where things get a little tricky. On your P &L, there's going to be things like your ingredients, your packaging, your labor and other cogs all in the calculation of gross profit margin.
on the PNL. Today in this episode, when we're talking about gross profit margin, we are only talking about what I'm going to refer to as core COGS. like revenue minus your core COGS is going to give us gross profit margin for the sake of this conversation. So in other words, your ingredients, your packaging, and your labor only. Okay?
So just to state it again, our gross profit margin for the sake of this conversation is revenue minus your core cost of goods sold, which are your ingredients, your packaging, and your labor.
And so my question would be, is this the point at which having that other tool to break your PNL kind of into starts to become really helpful so that you can do that math and create those formulas or use like you've already stated, right? The DIY profit assessment to just insert those numbers and see those formulas there.
Yes.
Yes. Okay. Yes. So the other thing I want to clarify here is that when we're talking about revenue minus core cogs and we're talking about it on the P &L level, we are not talking about specific product gross profit margins, right? This is a blended – this is a blend of all of the revenue from all of our products and all of our channels and all of our core cogs from all of our products.
Right? So I want to be really super clear about that. Okay. Now, from that gross profit margin, we are going to subtract – and I'm making air quotes here – other cogs. And what that is going to give us is what is called our contribution margin in the world, in the finance world, right? That term. So let's break this down a little bit. Other
Cogs, as I often refer to them, are things related to the sales and delivery of your product. Here's a list. Shipping supplies, actual shipping fees, your POS fees, your farmers market fees, your event and supply costs, your sales commissions or affiliate commissions. Oftentimes, if you have offsite storage or warehousing,
those costs will fall into other COGs as well. If you have, you know, 3PL fees, things like that, like those are going to fall into other COGs. Shall we talk about why? Yeah.
Yeah, let's do it. Let's do it. Cause that was my next question.
So your core COGS are fixed in a sense, right? They're variable in that each time you purchase your ingredients and your packaging, the cost might change. But the recipe and the amount of your ingredients, the amount of your packaging, the amount of your labor that goes into each unit is the same. Yeah. Okay. That makes sense. When we talk about other COGS, we might talk like shipping fees, for example.
Okay, we're gonna pick on this one. You might ship a product to...
Indiana, where you're based, right? So LA to Indiana, and there's going to be one cost associated with that. And then from LA to let's say Oklahoma is going to have a different cost, right? We are definitely going to understand those on the individual unit basis, but they're not going to be exactly the same even though we could be shipping the same exact product. Yeah. Another one is
like farmers market fees, right? It's not a product cog. It is another, an other cog because you could go to your farmers market and let's say in, you know, maybe you pay a flat fee for your booth. Maybe you pay $50 a day for the booth. Well, that $50 fee might cover a thousand dollars in sales or it might cover $1,500 in sales, right? That could be the difference of like, you know, a hundred
units. So if you're applying that $50 on a unit COGS level or a core level, it's going to be moving. It's a moving target. So any of these things that could be moving targets or just simply are not core COGS for creating your product are going to be considered quote, other COGS.
Okay, so this is making sense to me. It's anything that is directly related to the sale of your product, but is not fixed to the unit necessarily of your product.
Correct. It also could be related to the movement and the storage of your product, not necessarily to the end consumer, but in talking about warehouse and storage fees or 3PL fees, things like that. For example, your storage might be $1,000 a month, but the amount that you're storing in there could vary. The amount of products you sell does not have an impact on the storage fees.
You what I mean? So again, very unrelated but related. Yeah. Okay. Okay. So that's sort of level two, right? So we have revenue, then we have our gross profit margin, which is revenue minus our core cogs. Then we have contribution margin, which is that gross profit margin minus our other cogs. And then there's another layer that I'm going to talk about because I think that it will come up.
And some folks listening might have a question. And that is, I guess the question would be, what do you do with your advertising costs? So what if you're boosting posts on social media or what if you're like running, actively running Facebook ads? Does that become an other cog? Does that go into that category and count towards your contribution margin? And I heard this term for the first time.
in some meetings that I was in with some founders and I really liked it. I liked how this was broken down, which is why I'm sharing it here with everybody. That is gross profit after marketing and ad costs. Similar to other COGs, you might spend $1,000 on ads and sell 500 products, 500 units, or you might sell $2,000 on ads and sell 500 units.
There is an investment in trying to sell your product, but it's not going to be tied to a specific unit, right? Yeah. The other reason that we're breaking it apart into its own category is simply for visibility and understanding what's going on in your business, and that's sort the next step that we're going to take. But having things like
your ad spend and you might even want to do like promo costs if you're a CPG brand that's selling through distribution or into retailers that have promos and chargebacks and things. This is the category that those costs would fall into when you're doing your analysis.
Okay, and so what I'm starting to, you know, gather and like grasp my brain around right now is that when we're talking about the cost of goods sold, when we're talking about our profit margin, right? We're almost starting with like, yeah, those unit economics, right at the top, and then looking at what are the other things that I have to
invest in or pay for in order to sell this product that are going to come out of those profits before I even get to the point of looking at covering my operating costs.
Correct. Okay. Then after those other cogs, you're going to look at any ad spend or promotional spend that you have because that also went into selling your product. Yeah. Right? Yeah. Okay. Now we're going to talk about why are we looking at these things? What is the value? How does it relate back to that original question of why was my recommended
selling.
product gross profit margin for my client, 68 to 70 % rather than just the 51. Hopefully the image is starting to come together in your mind that you kind of at the top, you've got your product margins, right? Then you've got these other cogs that are going to play a role in selling and delivering your product and that's going to reduce that product margin a little bit. And then if you have advertising and other promotional spend, that's going to reduce
that grows profit margin even more, right? And so having visibility on how big are those reductions at each step in the profit margin is extremely helpful. And I can share a real life story if that might help illustrate things for people. Yeah. I have a client who
Through lots of work, we had discovered that their gross profit margins on their P &L were super low. We're talking 20 % or below, just like a very low, low number. We had to figure out why. Why was the gross profit margin on the P &L so small? Was there an issue? Was the product margin too low?
Was the product margin fine, but our ad spend was really high and somewhat ineffective, and so that was bringing our overall gross profit margin down? Or were we maybe paying too much for freight or for storage or in sales commissions? That was the area within our gross profit margins that was draining and stealing profit from them. In order to figure out the answer, we had to do that
that breakout, right? That like pop out of the orange and see all of the pieces to really understand where was the issue. So one of the first things we did was take the P &L. And just like we do in our profit assessment, I cannot say this enough, we took the P &L and it takes a couple of minutes where you just sort of assign a category to every line item on your P &L. in our system, you'll tell it, this is a product cog, this is an other cog.
This is an advertising or marketing expense. So you can see these things. Yeah. Right? And then you're able to say, my blended margin on my core products, right, my gross profit margin is X. Then my contribution margin is Y. And my final gross profit margin after ad spend is Z. And what we found out were multiple things in this case. The product margins were too low.
we weren't achieving above the 51 % on the whole, which meant we were not setting ourselves up for success, right? Because then we were losing – and I don't have this number exactly in my head, but it was around 10 % from gross profit margin to contribution margin, and then another like 5 % or so from contribution margin to gross profit after ad spend. So that ending number, that ending percentage
is had no chance of being above 51 % because the starting point, which is our product margins, they weren't high enough to enable us to land at above 51%.
Yeah, and I think you're bringing up a really good point here because I think it, you know, and correct me if I'm wrong, right? But from all my time of like listening to you and like learning from this, what I understand, you know, one of the things that you're saying here is that these targets, right, within each of these layers are going to be unique to your right. And so the reason that it is so important
business.
to break them out and look at them yourself is because you understand, I'm paying this much for storage. Yep, that's all I can do. That's the best I can do. Or can I actually move that number some? And you're the only person that can look at that and know that. And so you're the only person that can look at that top line gross profit margin and say, yes, I can improve this.
or I can't improve this so the margin itself needs to be higher.
Mm-hmm. Yeah. And you bring up a good point too. I don't want to get too into the weeds on things, but for example, if your storage fees are really high and you see that, or you're like, want to examine my storage fees because my other cogs are having such a big impact on my overall margins, it might be that you're holding onto too much inventory. You've got so much inventory. And that was actually something that happened with this client that I'm talking about. In digging in
like we found out like the product margins were not high enough. We also realized that we're paying a ton of money in monthly storage. And when you looked at the invoices, it was just recurring storage fees for stuff that was just sitting there. And meanwhile, like we're trying to grow sales. And so now we could strategize on what do we need to move out of inventory so that we can A, grow revenue, right? And B, reduce this storage cost. So there's like
so much added value at every single level, but you have to kind of start at the top and ask that question, am I setting myself up for success? So that takes us now to our listener question, right? How we knew that 68 to 70 % was where we needed that gross profit margin number to be was because of all of the other cogs that the business incurred. Yeah. And not only that,
but then all of the operating expenses that needed to be covered with the gross profit margin. So in this case, we had historical information. So I was able to take the prior year's P &L, run it through our profit assessment, and say, these numbers in the other COGs, we didn't have a lot of wiggle room on. Yeah.
So as you pointed out, that meant we had to ensure that our product margins or the gross profit margin as we're calling it in this episode, right, was high enough such that after the other COGS, we were at 51 % or higher.
Yeah. And I'm just going to go ahead and call this out because I think that this is exactly what you're talking about, right? When we have founders come and do the DIY profit assessment that we have on our website, Part of that tool is the decision tree. Yes. And as you're talking through this, all I'm seeing is those questions in the decision tree saying,
Have you looked at this? Okay, now what about this? Okay, if not, go back to here. If so, move forward. And it's all of the things that you're posing here, but in a very clean and laid out way for me to say yes or no, and then follow the logic.
Yes. Yep. Thank you for calling that out. It's one of those things where it actually isn't super complicated once you have a way to look at the information, right? Again, if you look at your P &L, and I didn't mention this earlier and I probably should have, your ad spend, for example, is not even going to be in the cost of goods sold section of your…
P &L. It's actually going to be in your operating expenses. The other thing about having a tool or having a separate spreadsheet to pull this information in is that you can reorganize that P &L into a way that allows you to see the numbers in the way that I'm laying them out today and talking through. Just to reiterate, the reason that that company had a 68 to 70 % product margin that we were shooting for for every product, if we couldn't get there,
we eliminated it from the menu or we revised the serving size and the pricing. There are lots of ways and if people are interested in an episode like that, I think we might have talked about it in the past, but there are lots of ways to get your product margins to where you need them to be. Sometimes you have to eliminate product because it just doesn't make sense. But most of the time, you can figure it out and make it work. What we were able to prove with that client and she, as I say in the episode, really did the work.
She took the information, she took the guidance, she said, I'm going to make sure that I hit that recommended margin for every single product that I have. Then I'm going to ensure that my other cogs don't grow. I'm going to make sure that they stay in line. Then I'm also going to keep my operating costs within budget, within set budget. At the end of the day, not only did she increase her July over July profitability immensely, but she also…
changed the overall profitability of the company dramatically over the year. And it's a seasonal business, which makes it even more impressive.
Yeah, as we've seen, Sarah, that was a really impactful episode. mean, anytime somebody sees like doubled your profits, what like that's important. And I think that that taking the time to really break down the work that you did and how you got there is going to be immensely helpful for any founders out there listening. And I want to just reiterate like what you've said about like popping out the information, right. And
Whether that's in your own spreadsheet, like I know we know a lot of people that they can get into Excel or Google Sheets and they can do the math and like they've got it. But if you're listening and you feel like you are not even sure where to start with a spreadsheet like that, with a tool like that, that is why we have our DIY profit assessment on our website. And as you said at the beginning of this episode, I believe, or it might've been another episode actually, now that I'm thinking about it.
But all the tools that we offer on our website are under $200 including the DIY profit assessment. And as we've talked through this process, Sarah, like even for me, it's becoming more clear how helpful a tool like that can be.
I'm glad. I'm really glad because again, everything that I try to do and what we're trying to create is to make understanding your financials easier and to make it also easier to implement change based on that information. I think the thing I have the hardest time doing is naming.
tools and naming resources so that people know this is what this thing does. This is the value that you can get from it. So if there's any naming experts out there, I welcome your feedback. I welcome your support and that. But at the end of the day, my job as I see it is to help people understand their numbers. And it's one thing to go, I know.
what this means and I know what that means. But it's another thing to say, I know what that means and I know how to change it or I know how to influence it or I know how to create change so that there's a larger financial impact, a positive one on my business.
That's exactly what I was going to say is like, I know what that means and I understand the impact.
Yeah. Having that pop out, that visualization of what really is living in that gross profit margin on my P &L and how can I separate it and really understand the different elements so that hopefully the founder who emailed us and any other founders listening can say, if I want to ensure that on my P &L,
gross profit margin there says 51 % or higher, I now know the steps that I can take to ensure that it does. And I know what I need my product margins to be in order to facilitate getting there, right? And I want to remind everybody too, like
This is the kind of work where you can do the DIY profit assessment. You can get the perfect pricing calculator. That's where you're going to get the support on, what are my actual product margins and are they high enough individually? The profit assessment is going to show you your blended product margin and where that is at as the starting point for your overall margin. Then you can come to office hours and go, Sarah, here's what I think I'm seeing.
you know, do you see the same thing as me? Here's where I think the impact could be made. You know, do you agree? Because the other thing is that you all are learning. And so if you are just doing the process for the first time, you have ways of getting support and additional help to kind of help get you through this first time and sort of just support you.
in making the decision, then when you start doing this on a quarterly basis or a monthly basis, however often you do it, you'll be able to do it on your own. But I was listening to someone on the internet not long ago and she was talking, I think she was like a Stanford professor or something and she was talking about learning and she was talking about how in today's day and age, we think that we should know everything, right? We should be great at everything, good at everything, but
When you're frustrated, when you get that feeling that generally is frustration, it means that you're learning and that it's an actual good place to be. I loved that and that helped me frame some things for myself. But also, don't solely exist in that frustration. You can come and get support. You know what I mean? As you learn to look at your numbers in a new way and as you start to try to
know, create that impact and change in your business or just simply to understand your numbers in a new way. You know, we're here for you, but we also want to support that learning process and really helping people to… Exactly. Yeah.
Get on their way almost. And I also just want to call out again, I know we've said this a couple of times now, but I want to call out the founder that submitted this question, right? I think, you know, as you've said before, Sarah, that it is our audience, it is our community that drives the content of this podcast and helps us, you know, decide what we're going to talk about each week.
This is one of those episodes that came directly from a founder asking a question. And so if you're listening, if you listen to this episode and you're like, a second, I need you to go back, contribution margin, I don't understand what, email us, right? Email us at hello at the goodfoodcfo.com. If you have a different question, email us there and we'll talk about it here on the podcast because that's what we do, we answer your question.
Yeah. We are here to help. We're here to talk about finances. We're here to have conversations that are not happening out in the world very often amongst founders. It's literally the reason why this podcast exists. If I have the same conversation with three founders, it's becoming a podcast episode. If we get an email to the inbox with a question, it's becoming a podcast episode. If you need an answer quicker, you know…
There are other ways to get quicker answers. you want specifics for your business, that's a different story. But if you've got a general question like this, especially if it can help other founders, please, please, please email us. It's amazing. And it's what we want to do is answer your questions and be helpful. Yeah.
I'll give that email one more time. It's hello at the good food, cfo.com. All right, Sarah, well, thank you for walking us through what felt at the beginning like it was going to be a really complex conversation, but by the end felt really cozy and comfortable.
Good, I'm glad.
Looking for more content like this? Subscribe to our YouTube channel. You'll see weekly podcast episodes as well as other content related to the show. Just visit youtube.com forward slash at the Good Food CFO.
Thank you for joining us here today. If you enjoyed this episode or found it helpful or inspiring in any way, please share it with your founder friends on social and rate and review the podcast wherever you listen. It's the number one way to help good food founders find the show. We'll be back with a brand new episode next week.
HAVE YOU RATED AND REVIEWED THE GOOD FOOD CFO PODCAST YET?
IT’S THE NUMBER ONE THING THAT YOU CAN DO TO HELP OTHERS IN THE FOOD INDUSTRY FIND THE SHOW!
And you can do it in just a few easy steps:
Click here to find the podcast on iTunes
If you listen on Apple hit “Follow” so you never miss an episode!
Scroll to the bottom of the page, Click “write a review” and share what you love about the show!
THANK YOU for helping to support & promote The Good Food CFO!