May 22, 2025
You’re Selling Plenty… So Why Does It Still Feel Like You’re Barely Getting By?
You’ve got the customers. You’re putting in the hours. Sales are coming in.
But when you check your bank account or sit down with your financials, something’s not adding up. The money should be there, but it isn’t.
It’s frustrating, and unfortunately, it’s also common.
For many small business owners in Canada, the real problem isn’t revenue—it’s gross margin. If you’re not paying attention to this crucial financial metric, you could be working harder than necessary just to break even.
This blog will break down what gross margin means (in plain English), how your numbers stack up against others in your industry, and what you can do to improve it—without cutting corners or burning out.
Let’s make sure your hard work shows up in your bottom line.
What Is Gross Margin?
Gross margin is the percentage of each dollar of revenue you keep after covering the direct costs of what you sell—things like inventory, raw materials, or subcontracted labour.
Here’s the basic formula:
Gross Margin = (Revenue – Cost of Goods Sold) ÷ Revenue
For example, if you sell $100,000 worth of product and it costs you $70,000 to produce it, your gross margin is 30%. That means you keep 30 cents on every dollar of sales—before accounting for operating expenses like rent, payroll, and taxes.
Why it matters:
Gross margin is a key metric that provides valuable insights into your pricing strategy and cost structure. If your margin is too low, it becomes challenging to cover overhead costs and achieve sustainable growth.
How Does Your Gross Margin Compare to Others in Your Industry?
Here’s a look at some average gross margins across Canadian industries:
📊 Sources:
Keep in mind—these are averages. Your target might differ based on your location, niche, business model, and company size. But if you're significantly below your industry benchmark, it's time to take a closer look.
What Affects Your Gross Margin?
If your margin feels tight, here are some common reasons why:
Things You Can Control:
- Pricing that's too low: Discounting to compete can erode your profit margin.
- Supplier costs are too high: You might be overpaying for raw materials or other direct expenses without realizing it.
- Low-margin products or services: Not everything you offer is equally profitable.
- Inventory problems: Overstocking, shrinkage, or frequent rush orders can increase operational costs.
Things That Sneak Up on You:
- Increases in raw material or shipping costs
- Minimum wage hikes or new regulatory fees
- Supply chain disruptions or currency fluctuations
Sometimes, it's not one big thing—it’s a combination of factors that add up over time.
How to Improve Your Gross Margin Without Burning Out
Here’s the good news: small changes can make a big difference. Start here:
✅ Review your pricing: When was the last time you evaluated your pricing strategy? You might be overdue for adjustments, considering market conditions and customer demands.
✅ Negotiate with suppliers: If you’ve been a loyal customer, ask about better terms or volume discounts to reduce input costs.
✅ Trim your product/service lineup: Focus on high-margin products that contribute more to your bottom line. You don’t need to sell everything to everyone.
✅ Keep a closer eye on inventory: Avoid letting old stockpile up. Implement effective cost management to optimize inventory levels.
✅ Track your margins regularly: Don’t wait for year-end. Regular reviews help you make informed decisions and identify trends over time.
“My Gross Margin Is 20%—Is That Normal?”
Let’s say you run a small retail business in Ontario and your gross margin is around 20%. You’ve noticed industry benchmarks are closer to 30–35%, and it’s starting to feel like you’re always playing catch-up with expenses.
Here’s what a quick audit reveals:
- Your bestselling items are also your lowest-margin ones.
- You’re offering too many discounts, too often.
- Your supplier pricing hasn’t been reviewed in two years.
After making a few changes—cutting underperforming items, renegotiating supplier rates, and adjusting prices—your margin bumps up to 27%. That might not sound huge, but it means thousands of dollars in extra breathing room every quarter.
Why Benchmarks Matter
Benchmarking isn’t just about comparing yourself to others—it’s about setting smarter goals. When you know where you stand, you can:
- Identify what’s working (and what’s not)
- Make confident decisions about pricing or product strategy
- Demonstrate financial performance to lenders or investors
- Stop guessing—and start steering
Use tools like BDC’s benchmarking portal or data from Statistics Canada to find relevant industry benchmarks.
Final Thought: Don’t Let Your Hard Work Go to Waste
If your sales look solid but your profits don’t reflect it, gross margin is the first place to look. A few smart changes today can make your business stronger, more sustainable, and more rewarding tomorrow.
You deserve to see the results of all your effort—not just in customer satisfaction, but in your bottom line.
Note: The industry benchmarks provided are based on available data and may vary depending on specific market conditions and business models.
