Were you forwarded this email? Sign up here to get the next edition.
Very early on in my career, I had a boss who taught me the crucial difference between gross and net margin. I was proposing a new campaign that would require only a $5k investment. His first question was, "How much do you think it will make us?" I said it would easily bring in $20k (thinking I was smart enough to double the gross profit). He took glee in telling me it needs to bring in at least $100k to break even. Suddenly, I wasn’t so cocky. This ad guy had a lot to learn about “investing” in large retail.
Fast-forward to today, and it feels like everyone's talking about the importance of profitability. Revenue is vanity, profit is sanity, cash is king, et cetera, et cetera. As soon as that lesson hits you and it becomes normal in the way that you think about retail and business, it's a huge unlock - whether you are a founder or looking to do cool stuff in your role.
In this week’s episode, we do talk about profit… but also sanity. There is mental health that comes from actually understanding your numbers. I didn't expect this level of emotional intelligence from an accountant. Chasing revenue without a clear focus on margin means you're constantly running harder without fully understanding why the impact isn't showing up. You're busy, growing… exhausted. And getting more exhausted.
But it’s a choice. Sometimes we just need the right numbers to make the right choice for our business performance and our personal peace of mind.
Cheers,
Bushy
P.S. Let me know what you think of this new Monday ‘episode cheat sheet’ format. I’m trying to give you as much out of each episode even if you don’t have time to listen to the whole thing.
EPISODE CHEAT SHEET
Beyond Revenue: The Financial Framework Every Ecommerce Business Needs (Episode 612)
⏭️ Skip To The Good Bits
Gross Profit And Unit Economics (7:43)
Contribution Margin And Ad Spend (9:47)
Break-Even Plus Paying Yourself (14:03)
Decisions With Numbers Not Hype (23:45)
Reporting Cadence That Actually Works (27:39)
Why Attribution Still Fails (31:27)
Tax Planning And GST Buckets (32:28)
Debt For Inventory Without Disaster (38:26)
Forecast Scenarios And Downside Protection (40:48)
AI Automations And Better Dashboards (44:46)
💬 Quote of the Day
"The purpose of this business is to give me a return and my family a return, and to outweigh the opportunity cost of what else I might have done." (19:55)
Add To Cart is brought to you by
🧠 The Big Lesson
The difference between gross margin and contribution margin
Gross margin tells you if your product works. Contribution margin tells you if your business does.
Gross margin is the number most operators know. Revenue minus cost of goods. It tells you whether you're making enough on what you sell to cover everything else.
A 60% gross margin sounds healthy. For a lot of categories, it is. But gross margin doesn't know about Meta. It doesn't know about Google. It's calculated before any of that touches it, which means it can look perfectly fine while your business is quietly bleeding.
"Contribution margin is how much is it contributing to paying your overheads and your profits. That's the way I look at it." (08:00)
Matt sees this constantly with the Shopify brands he works with. Founders celebrate a healthy gross margin, while their contribution margin, which is what's actually left after ad spend, tells a completely different story. His point is clear - you can have a 60% gross margin and still make nothing if you're overspending on acquisition. The number that actually pays your team, your rent, and eventually you, is contribution margin. Gross profit minus your marketing spend. That's the real line.
"If you've got a 15% contribution margin on a product and you go and slap a 20% discount on it, then you're stuffed. You're going backwards." (21:39)
The trap is optimising for the wrong metric. Negotiating better COGS, tightening supplier terms, improving packaging costs, all worthwhile, but none of it matters if you haven't asked what's left after you've paid to acquire the customer.
✏️ Ecommerce action tips from this episode
Know your contribution margin by channel, not just overall. Blended looks fine until you pull it apart and realise one channel is quietly destroying the economics of another.
Set up a separate bank account for GST and PAYG and automate a transfer into it on every Shopify payout. The BAS shock in January is optional.
If you're reconciling Shopify orders one by one in Xero, look at A2X. It's the kind of boring fix that saves hours and removes the errors that compound into bad decisions.
Run a SKU-level contribution margin at least once a quarter. Your best-selling product and your most profitable product are probably not the same thing.
Ask your accountant what percentage of revenue you're typically paying in GST. If they can't tell you off the top of their head, that's worth knowing too.
🎧 If you liked this episode, you might also like…
Danny Chiha & Natalie McDermott (Kelly+Partners) | Knowing Your Numbers in Ecommerce | #425
The cautionary tale version of Matt's episode. A client accumulated $200k in Facebook ad debt running campaigns that were never actually profitable. Gross margin looked fine. Contribution margin told a very different story.
Carla Penn-Kahn & David Kahn (Profit Peak) | Boosting Ecommerce Profitability with Visibility | #400
Carla and David built Profit Peak after struggling with profitability in their own ecommerce business. They achieved a 20% gross profit uplift in four months simply by shifting from revenue-level to profit-level visibility in real time. Practical and specific.
Kelly Walker & Julie Benhammo (KLIPSTA) | Checkout | #509
The KLIPSTA founders describe what changed when they stopped celebrating revenue and started looking at actual profit. Going crazy generating revenue without watching margin is a trap more people are in than they'd like to admit.
💡 Work with Nathan
Need help making a big call or sense-checking your strategy? You can book a consultation session to tackle challenges, test assumptions or connect with the right people in ecommerce.
I also partner directly with retailers and tech providers on team coaching, transformation strategy and advisory roles. If that sounds like what you need, get in touch, and we’ll take it from there.
