Every founder I’ve worked with has an instinctive obsession with revenue.
It makes sense. Revenue is visible. Revenue gets celebrated. Revenue unlocks funding, headlines, and market momentum. It signals movement. Growth. Traction.
But more often than not, that same revenue hides the truth about how the business is actually doing.
I once worked with a D2C brand that had scaled fast across three countries. Revenue had tripled in under a year. The founder was being invited to panel discussions. A large VC was engaged. There was talk of an $8M raise at a $40M post-money valuation.
On paper, it was a success story.
But inside the model, something was broken.
The more they sold, the worse their financials got.
Every percentage point of growth required disproportionate capital. Cash conversion was deteriorating. And worst of all, their best-selling SKUs – those celebrated in Instagram campaigns and bulk discounted to retailers—were contributing less than 18% in gross margin. One line was actually negative.
They weren’t scaling profit. They were scaling loss.
And it was all being masked by topline growth.
The Dangerous Illusion of Revenue-Led Validation
Founders get rewarded for revenue. Investors respond to momentum. Teams celebrate milestones. But in the background, a business lives or dies not on revenue – but on what’s left after you deliver your product or service.
That’s gross margin.
Gross margin is the delta between what you earn and what it costs you to fulfill that earning.
It’s the difference between:
- Running a profitable operation at $1M in revenue, or bleeding cash at $10M.
- Having strategic freedom in pricing decisions, or being trapped in discount cycles.
- Raising capital on strength, or constantly fundraising to plug losses.
Gross margin doesn’t get enough credit because it doesn’t photograph well. But it’s the most revealing metric in your business. It tells you if your model works – or if it’s a beautiful story layered over structural failure.
Most Founders Misunderstand Where Margin Lives
Ask a founder about burn rate, and they’ll give you a number. Ask about monthly revenue, and you’ll get a slide. Ask about unit economics, and they might reference a cohort study or CAC payback.
But ask about gross margin – real gross margin, not assumed – and the answers become vague.
That’s because many founders think gross margin is an accounting artifact. A static percentage on the P&L. Something for the CFO to clean up before the board meeting.
It’s not.
Gross margin is an operational lens. It’s a strategic compass. It’s the clearest expression of whether your business creates real economic value with every sale — or simply moves money around and calls it growth.
And here’s the truth that stings: no amount of revenue can compensate for poor gross margin discipline.
There Are Only Three Ways to Improve Gross Margin – and Founders Avoid All of Them
In every operating model I’ve reviewed, across vertical SaaS, D2C, manufacturing, fintech, and marketplaces, the levers of gross margin improvement have always boiled down to three. And they’re never as glamorous as the growth story.
1. Raise Prices
This is the lever founders talk about least – and fear the most.
Pricing feels sacred. Untouchable. Founders imagine a customer backlash, or a competitor undercutting them the moment they move. But what most miss is that pricing isn’t a function of cost – it’s a reflection of perceived value.
If you can’t raise prices, it’s either because:
- You haven’t built differentiation
- Or you haven’t built the courage to test your positioning
The companies with the strongest brands, best customer experience, and sharpest segmentation charge more — and they do it unapologetically.
Margin discipline doesn’t begin with procurement. It begins with pricing power.
2. Reduce COGS
Cost of goods sold (COGS) is where operational excellence shows up. Your ability to source better, produce smarter, and negotiate more effectively.
But COGS isn’t just about hard costs – it includes logistics, packaging, payment gateway charges, fulfillment inefficiencies, cloud costs, customer onboarding time, and more.
When you sell software, your COGS might include devops cost per user. When you sell food, it includes spoilage and inventory shrinkage. When you run a marketplace, it’s the cost of fulfillment, returns, and support.
Small improvements here compound. Because margin is not always made in big wins — it’s built in better contracts, tighter specs, and smarter processes.
But COGS is rarely examined by founders because it’s not glamorous. It’s also not well understood — which is why it silently erodes profitability while leadership celebrates topline growth.
3. Improve Product Mix
This is the most ignored lever of all – because it requires a level of granularity and self-awareness most teams avoid.
Every company with multiple products or SKUs has a margin map. Some products drive brand, others drive volume, and a few drive margin. The problem begins when you let volume dictate strategy.
If your fastest-growing SKU contributes the lowest gross margin, you’re scaling into fragility.
One of the companies I worked with was using performance marketing to push its lowest-margin SKU – because it had the best CTR. The CAC looked reasonable. The funnel was working. But no one noticed that each conversion was adding less than $1.50 in contribution margin – and eating up warehousing and operations capacity at 4x the rate of their premium SKU.
Once we ran the margin-weighted channel mix, it became clear: They weren’t optimizing growth. They were penalizing their economics in exchange for vanity metrics.
Product mix strategy is not about selling more. It’s about selling more of what earns you more – and letting go of what doesn’t.
Why Gross Margin Is the Most Honest Metric You Have
Gross margin doesn’t lie.
It’s not distorted by capital injections. It doesn’t get inflated by discounts. It can’t be spun with a better story.
It’s either there — or it isn’t.
That’s why every investor worth their capital will, at some point, ask for it. And not just at the topline, but by SKU, by channel, by segment, and by month.
Because revenue is momentum. But margin is model.
You can fund momentum. You can’t fund a broken model indefinitely.
Fixing Gross Margin Fixes Everything Downstream
Overhead can be controlled. Marketing efficiency can be improved. Team size can be rationalized. But none of it matters if every unit you sell puts you further away from sustainability.
If you’re serious about scaling, and not just surviving, gross margin is where the discipline starts. Not because it looks good on a slide. But because it tells you – in real terms – whether what you’ve built actually works.
Most founders try to outrun margin problems by growing faster. The smart ones stop. Model. Reprice. And build something durable.
Because if gross margin is weak, growth is not the answer. It’s just a faster path to collapse.
