If You Don’t Know This Number, Your Business Can’t Scale

Most business owners assume that making more sales automatically means making more money.

That assumption is wrong.

If you’ve ever looked at your bank account after a big sales month and thought, Where did all the money go?—this is for you.

Scaling isn’t just about selling more. It’s about understanding your numbers and ensuring your profit grows with your revenue, not just your expenses.

Let’s break it down.

Gross Profit vs. Gross Margin—What’s the Difference?

Before we go any further, let’s get clear on two numbers that determine whether your business is actually making money.

• Gross Profit: The actual dollars left after covering the direct costs of producing your product or service.
• Gross Margin (%): The percentage of each sale that is actual profit, showing how easily you can make money on what you sell.

Both are critical, but gross margin is what tells you if your business is truly scalable. If your gross margin is too low, selling more will not lead to more profit. It will just lead to more work.

How to Calculate Gross Profit & Gross Margin

1. Gross Profit Formula

Gross Profit = Total Revenue – Cost of Goods Sold (COGS)

This tells you how much money is left after paying for the direct costs of what you sell.

2. Gross Margin Formula

Gross Margin (%) = (Gross Profit ÷ Total Revenue) x 100

This tells you what percentage of every dollar you make is actual profit.

Why These Numbers Matter

A high gross margin means your product or service is profitable and scalable. A low gross margin means that as you grow, your profit might disappear.

The Mistake Most Business Owners Make

If you only look at your bottom-line profit without knowing what’s driving it, you’re flying blind.

A common mistake? Not understanding the difference between fixed and variable costs.

• Variable costs increase as you sell more (materials, labor, shipping).
• Fixed costs stay the same whether you sell one product or one thousand (rent, insurance, software).

If your variable costs increase too much or your pricing is too low, your ability to make a profit disappears.

Let’s look at two real-world examples.

Example 1: A Product-Based Business

Imagine you sell hand-poured candles for $40 each.

• The wax, wick, jar, and packaging cost $10 per candle.
• That makes your gross profit $30 per candle.
• Gross Margin = ($30 ÷ $40) x 100 = 75%

Not bad, right?

But what if your costs go up?

• If material costs increase to $15 per candle, your gross margin drops from 75% to 62.5%.
• If you sell 8,000 candles per year, that’s a $40,000 loss in profit.

If you don’t track your gross margin, you could be selling more and making less.

Example 2: A Service-Based Business

Let’s say you own a spray tan salon and charge $100 per spray tan.

• The cost of tanning solution, disposables, and technician time is $30 per tan.
• Your gross profit is $70 per tan.
• Gross Margin = ($70 ÷ $100) = 70%

Now, let’s say you invest in a new piece of equipment that cuts application time in half.

• Your labor cost drops, and now your gross profit is $80 per tan.
• Over 5,000 spray tans per year, that’s $50,000 more profit.

Small efficiency changes can create massive profit growth without needing more sales.

Why This Matters for Scaling Your Business

Understanding your gross margin is understanding your ability to scale.

As you grow, your fixed costs become less relevant.

Why? Because they don’t change as revenue increases.

For example, if your rent and insurance are $3,000 per month:

• At $10,000 revenue, those expenses eat up 30% of your earnings.
• At $100,000 revenue, those same expenses are only 3% of earnings.

This is why businesses that scale focus on increasing revenue while keeping costs controlled.

At a certain point, paying the bills becomes an afterthought. That’s when you know you’ve made it.

What to Do Next: Your Action Plan

To make sure your business is actually profitable, not just busy, take these steps:

• Calculate your gross margin for every product or service.
• Track fixed and variable costs separately.
• Monitor how variable costs change as you grow.
• Adjust pricing or operations to keep profitability in check.

Profitability isn’t just about selling more—it’s about keeping more.

Book a Free Consultation with CFO Mike Farneti

At Daring Haus, we help business owners take control of their numbers—without the stress. Because you shouldn’t have to guess if your business is profitable.

Our CFO, Mike Farneti, is offering a free 30-minute consultation to help you:

• Break down your pricing and gross margins
• Identify areas where your costs are cutting into profit
• Find ways to scale without losing profitability

This is your chance to get expert insights into your numbers—completely free.

Click [here] to book your free consultation now.

Plus, if you’re looking to gain a deeper understanding of your business’s cashflow, click [here] to sign up for our Free Cashflow Masterclass.

Final Thoughts: Revenue Means Nothing If Your Profit Margins Are Weak

At the end of the day, profitability matters more than revenue.

You can sell $1 million a year and still be broke if your costs are out of control.

But if you build your business on strong profit margins, you’ll scale without stress—because more sales will actually mean more money in the bank.

If you’re serious about scaling, start by knowing your numbers. It’s the difference between a business that just looks successful and one that actually is.