740 bps gross margin recovery without price increases
Mid-market contract manufacturer losing margin to quote leakage and freight pass-through gaps. We rebuilt the costing model and the quote-to-cash workflow.
- Gross margin compressed 920 bps over 36 months despite stable input prices.
- Quote-to-cost variance averaged 11% across the top 50 SKUs.
- Freight pass-throughs leaked an estimated $1.4M annually, no one owned the recovery.
- Sales bonuses paid on revenue, not contribution margin.
- ERP-based standard costs hadn't been refreshed in 19 months.
Standard cost refresh
Rebuilt the bill-of-materials and labor standards SKU by SKU on the top 80% revenue concentration.
Quote leakage analysis
Compared every quote against actual cost-to-make over the prior 18 months. Surfaced systematic underpricing in three product families.
Freight recovery
Reworked the customer freight matrix and enforced surcharge pass-throughs in 41 contracts.
Comp plan redesign
Moved sales bonuses to contribution margin and added a clawback on freight leakage.
A second-generation industrial contract manufacturer in the US Midwest. $84M revenue across 340 active SKUs and 62 customers. Gross margin had compressed 920 bps over three years, leadership blamed input costs, but the data told a different story. We were brought in by the family office that holds a minority stake.
- Week 1–3
Cost diagnostic
Rebuilt standards on 64 SKUs representing 81% of revenue. Variance to actuals down from 11% to 2.4%.
- Week 4–6
Quote workflow
Quote tool reissued with refreshed standards and minimum margin guardrails by product family.
- Week 7–9
Freight redesign
41 customer contracts amended. New surcharge schedule live; freight recovery up 19 points.
- Week 10–12
Comp plan
Sales compensation tied to contribution margin. First commission cycle on new plan paid in week 14.
- Gross margin recovered 740 bps within two quarters, no price increases passed to customers.
- $6.2M in annualized gross profit recaptured.
- Sales team retention improved despite the comp plan change, top performers earned more under the new structure.
- Standard cost refresh cycle now quarterly, owned by operations.
- Family office documented the playbook for two other portfolio companies.
- 01
Margin compression is almost never an input-cost story, it's a quoting, freight, or mix story.
- 02
Comp plans tied to revenue will destroy margin every time, no matter how good the rest of the system is.
- 03
Standards that aren't refreshed quarterly stop being standards.
"We thought we needed to raise prices. CapMaven proved we needed to charge correctly. There's a difference, and it's worth six million dollars a year."
How disruptive was the comp plan change to the sales team?+
Less than expected. We modeled every rep's prior 12 months under both plans and grandfathered floor commissions for two quarters. Top performers earned more from quarter one.
Did you need to involve the ERP vendor?+
Not for the cost refresh, that was a data exercise on top of existing ERP records. The quote tool changes were configuration-only.
Is 740 bps a typical result?+
Typical for contract manufacturers with stale standards and revenue-based sales comp. We've seen 400–900 bps in similar situations. Less for businesses that have already done this work.
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