Dec 22, 2021
Gross margin never matters to pricing. Occasionally, contribution margin does.
This might feel like accounting to you.
Gross margin, contribution margin…. but you've probably heard me say, 'Fixed costs never matter to pricing. Never, never, never.’
Now, if you believe that here's a really simple accounting concept.
“Gross margin includes allocated fixed costs to the cost of a product. Contribution margin does not include allocated fixed costs. “- Mark Stiving
So if we simply take the rule that fixed costs never mattered in pricing, then when we're making pricing decisions, we shouldn't be looking at gross margins.
Sometimes we want to look at contribution margin, especially if we're pricing. Uh, take it or leave it type products.
And we can talk about that some other day.
So please don't use gross margin.
We hope you enjoyed this podcast. If you see have any questions or feedback please email me email@example.com.
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