Business Core · Monetisation · Module
Margin structure
What remains after delivery, and how that changes with volume. A business with margin at small scale and none at large scale has a structural problem, not a pricing one.
The idea
How it works
Margin is the gap between what a customer pays and what serving them costs. Getting it right per unit is the whole question, because volume multiplies whatever the answer is, including a negative one.
Cost to serve varies far more by customer than most organisations track. Large accounts often cost disproportionately more, and the difference frequently exceeds the price difference.
Working with it
In practice
- 01
Calculate cost to serve per customer type
Not average cost. The variation between customer types is usually the finding.
- 02
Separate fixed from variable honestly
Costs that scale with volume behave differently from costs that do not. Mixing them hides where the leverage is.
- 03
Model margin at three volumes
Current, double, and ten times. Structural problems only appear at one of the three.
- 04
Find the unprofitable segments
Almost every business has some. Knowing which is the precondition for deciding what to do about them.
One level in
The components of margin structure
A component is something that exists afterwards which did not exist before — a deliverable or a mechanism, not an intention.
Model margin at ten times current volume. Structural problems are invisible at today’s scale and unavoidable at tomorrow’s.
The other modules in monetisation
Revenue model
What the organisation charges for and on what basis. The most consequential choice in the object, and usually the least examined.
LearnPricing
What is charged, and how the level is arrived at — from cost, from competitors, or from the value delivered. The third is hardest and usually produces the best answer.
LearnRevenue quality
How predictable, recurring and concentrated the income is. Two businesses with the same turnover can be worth very different amounts.
Learn