Memecast #37: Gross Margin Never Matters

<p><span style="font-weight: 400;">Gross margin never matters to pricing. Occasionally, contribution margin does.</span></p> <p><span style="font-weight: 400;">This might feel like accounting to you. </span></p> <p><span style="font-weight: 400;">Gross margin, contribution margin…. but you've probably heard me say,</span> <em><span style= "font-weight: 400;">'Fixed costs never matter to pricing. Never, never, never.’</span></em></p> <p><span style="font-weight: 400;"> Now, if you believe that here's a really simple accounting concept. </span></p> <p><strong>“Gross margin includes allocated fixed costs to the cost of a product. Contribution margin does not include allocated fixed costs. “- Mark Stiving</strong></p> <p><span style="font-weight: 400;">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.</span></p> <p><span style="font-weight: 400;">Sometimes we want to look at contribution margin, especially if we're pricing. Uh, take it or leave it type products. </span></p> <p><span style="font-weight: 400;">And we can talk about that some other day. </span></p> <p><span style="font-weight: 400;">So please don't use gross margin. </span></p> <p><span style="font-weight: 400;">We hope you enjoyed this podcast. If you see have any questions or feedback please email me mark@impactpricing.com. </span></p> <p><span style="font-weight: 400;">Now go make an impact.</span></p> <p><strong>Connect with Mark Stiving: </strong></p> <ul> <li style="font-weight: 400;" aria-level="1"><span style= "font-weight: 400;">Email: mark@impactpricing.com</span></li> <li style="font-weight: 400;" aria-level="1"><a href= "https://www.linkedin.com/in/stiving/"><span style= "font-weight: 400;">LinkedIn</span></a></li> </ul>