Blended gross margin averages the product carrying the company against the one that has been subsidised for years. Here is what to build instead.
Gross margin is the most quoted number in most businesses and one of the least useful, because it averages the product that carries the company against the one that has been subsidised for three years.
A company running at forty percent blended gross margin may have one line at sixty and another at fifteen. The fifteen may be growing fastest, because it is easiest to sell, because it is underpriced. The aggregate says the business is healthy. The detail says you are scaling the wrong product.
Nothing in a standard chart of accounts surfaces this. It has to be built deliberately.
For anyone importing physical goods, freight, duty, and tariffs belong in the cost of the units received, not in the month the invoice arrives. Expensing them detaches cost from the product entirely.
Retailer chargebacks, slotting fees, and co-op deductions reduce what you actually collect. If they sit in one lump, net price by product is unknowable.
Time that can be traced to producing or delivering a specific product belongs in cost of sales for that product. Sweeping it into overhead flatters some lines and penalizes others.
An allocation rate set two years ago at a different volume mix distorts every line, and the distortion grows quietly as the mix shifts.
For e-commerce, channel fees, payment processing, and fulfilment are cost of sale. Leaving them below the line makes every channel look equally profitable.
Start with a product or service hierarchy that matches how you actually make decisions, not how the ledger happens to be structured. Assign every direct cost to that hierarchy. Choose one allocation basis for shared cost, document it, and apply it consistently so period comparisons mean something. Then report contribution margin per line monthly, alongside volume, so you can see whether a margin move came from price, cost, or mix.
The first honest product-line margin report changes at least one decision in most companies we work with. Sometimes it is a price increase that should have happened a year earlier. Sometimes it is discontinuing something that has been quietly losing money. Occasionally it is the discovery that the least glamorous line is the one funding everything else.
Eight questions on how your books run today. You get a score, a read on where you are fragile, and the order we would fix things in.
