What’s a Healthy Gross Margin for My CPG Brand?
Key Takeaways
Gross margin is a non-negotiable metric that determines how sustainable your food or beverage brand actually is.
Most early-stage brands should aim for 40–50% gross margins depending on category, with higher benchmarks possible in premium or shelf-stable segments.
Gross margin varies by channel. DTC offers higher revenue capture but more fulfillment drag. Amazon and distributor models compress margin fast.
Ingredient costs, co-man fees, and packaging decisions often matter more than founders realize—especially when pricing is locked.
Improving margin takes real modeling. Hoping COGS will go down is not a strategy.
We see dozens of startup and emerging brands every quarter. And we know exactly what founders are up against.
Sales targets are urgent. Retail doors are exciting. Cash is tight. So founders push margin planning to the side, hoping to deal with it later. They assume they’ll bring down COGS with volume. They think retailers will accept higher prices once traction is proven. But that rarely happens. Costs don’t magically drop. Retailers don’t reverse margin pressure.
If you can’t make your margins work at year one, they probably won’t work at year three. This article walks through what gross margin actually is, what “healthy” looks like by category and channel, and how to identify opportunities for improving COGS without compromising quality.
What Is Gross Margin and Why It Matters in CPG
Gross margin tells you how much money is left after covering the cost to produce your product. It’s what’s left to pay for everything else: trade spend, payroll, marketing, rent, and cash cushion.
Formula: Gross margin = (Revenue − COGS) ÷ Revenue
COGS typically includes:
Raw ingredients or materials
Packaging and labeling
Co-manufacturing costs
Freight-in to your warehouse or 3PL
COGS does NOT include:
Outbound shipping (DTC or wholesale)
Pick and pack
Amazon or marketplace fees
Trade spend or discounts
Salaries, marketing, rent, or software
Let’s walk through a simple example. If a brand sells a 6-pack of functional beverage for $36 DTC, and the total COGS is $18 (ingredients, cans, box, freight-in), then the gross margin is 50%.
But if that same 6-pack goes through a distributor, and the brand only nets $22 per case after retail and distributor markups, then with the same $18 COGS, the gross margin drops to just 18%.
Gross Margin Benchmarks by Category and Channel
There is no single answer to what a "healthy" gross margin is. A 30% margin in frozen may be totally normal. A 40% margin in premium chocolate may not be enough. What matters is context.
Here’s a summary of gross margin benchmarks pulled from industry data, Cultivar client work, and sector analysis:
| Category | Typical Gross Margin (Brand Side) |
|---|---|
| Chips/Snack Foods | 30–40%; premium SKUs can hit 50%+ |
| Gluten-Free Crackers | 30–35% early-stage; 40%+ with scale |
| Functional Beverages | 30–50%; lower at launch, improves w/ volume |
| Frozen Breakfast Foods | 28–35%; 40% is an ambitious target |
| Ice Cream (Frozen) | 35–45%; high cold-chain costs |
| Whole Bean Coffee | 50–60% in specialty channels |
| Premium Chocolate Bars | 45–60%; high-margin category |
| Jarred Salsa/Sauces | 35–45%; higher if scaled or premium |
Channel-by-Channel Margin Expectations
| Channel | Gross Margin Range | Notes |
|---|---|---|
| DTC | 50–70% before CAC | High revenue capture; fulfillment costs apply |
| Wholesale | 35–45% | Fewer fees; lower price per case |
| Distributor | 25–40% | Retailer + distributor margins eat margin |
| Amazon 3P | 30–45% | Referral + FBA fees reduce effective margin |
| Amazon 1P | 20–35% | Treated like wholesale; lower price to brand |
Every channel introduces margin drag in different ways. Founders often overestimate Amazon margins and underestimate trade spend in distributor models. A clean margin model starts with real invoice prices and builds from there.
Gross Margin Benchmarks by Product Category
To put hard numbers behind it, here are ranges based on real-world sources:
Snack foods (chips, crackers): 30–40% is typical. Premium or artisan products can reach 45–50%.
Functional drinks (mushroom sodas, RTD teas): 30–50%, with higher margin as scale improves.
Frozen foods (waffles, ice cream): 30–35% is common. Ingredient and storage costs hold margin down.
Coffee: Often 50%+, thanks to high perceived value and lower COGS.
Chocolate bars: 40–60% for artisanal or organic brands. Pricing power is strong.
Jarred sauces and salsa: 35–45% on average. Premium lines can hit 50%.
Benchmarks are only helpful if you apply them correctly. For instance, a 40% gross margin in frozen may be a win. The same number in shelf-stable pantry may be underperforming. Always anchor your goals in category dynamics.
Channel Comparison: Natural & Specialty Retail vs. DTC vs. Amazon
Selling the same product in three channels often yields three very different margins. Here’s a scenario using a $6 MSRP unit in a 6-pack case.
Natural/Specialty Retail via Distributor
Retailer margin: 40%
Distributor margin: 15%
Brand revenue per unit: $3.06
Revenue per case: $18.36
COGS per case: $12.00
Gross margin: 34.6%
DTC (Shopify)
Revenue per case: $36.00
COGS: $12.00
Fulfillment: $5.00
Gross margin: 52.7%
Amazon 3P with FBA
Revenue: $36.00
Amazon fees (referral + FBA): ~$9.00
COGS: $12.00
Gross margin: 41.6%
DTC wins on margin percentage, but also carries CAC. Amazon sits between DTC and distributor. Distributor margins tend to be the lowest, but offer broader reach. The key is understanding each model’s tradeoffs and how your COGS holds up under those conditions.
Why Margins Slip—Even If Revenue Grows
Gross margin erosion is one of the biggest blind spots for early-stage brands. Revenue may look solid on paper, but if cost structures aren’t tightly managed, each new order drags cash lower.
Here’s where founders typically run into trouble:
Yield loss or overages: Ingredient waste, manufacturing inefficiencies, and underestimating real run costs.
Underpriced freight-in: Inbound logistics rarely hold steady. As fuel costs or logistics lanes change, margin takes a hit.
Packaging creep: Costly boxes, inserts, or overengineered solutions that don’t add true value.
Untracked promo deductions: Retail chargebacks, distributor programs, or discounts that aren’t captured in the model.
It’s not just about cutting costs. It’s about modeling cost realities with discipline.
Real-World Fixes to Improve Gross Margin
You can’t fix what you don’t measure. These are tactical ways we help brands shore up margin at Cultivar:
Re-spec formulas: Change high-cost inputs without compromising taste or quality.
Optimize packaging: Down-gauge materials or reduce excess dunnage.
Negotiate co-man contracts: Lock in stable rates with volume-based tiers.
Reevaluate freight carriers: Regional options may beat national rates for warehouse-to-DC lanes.
Model channel-specific revenue, not just MSRP: Always build bottom-up from actual landed revenue, not top-line pricing.
Cap promo spend: Avoid runaway trade programs by modeling them before signing.
Audit production reports: Look for yield inconsistencies, overages, or batch size mismatches.
Strong Margins Build Durable Brands
Gross margin funds everything. It determines how long your cash lasts, how much you can reinvest, and how confidently you can grow.
You don’t need perfect margins to launch, but you do need to know the number. Use actual invoice costs. Break it down by channel. Compare it to category benchmarks. Then fix what needs fixing.
If you’re unsure where your margins sit, or you’re hoping scale will solve margin gaps, now’s the time to model it. That’s where we come in.
Need help calculating gross margin, analyzing COGS, or building a margin strategy that actually scales? Contact Cultivar to get started.
FAQs
How often should I review my gross margins?
Margins shift more often than founders expect. Ingredient prices, co-man rates, and freight costs all move with market volatility. A quarterly review is the minimum for early-stage brands, especially if you’re expanding SKUs or channels. Mature operators track gross margin monthly, often tying it to rolling 12-month averages so they can spot creeping COGS changes before they become permanent losses. Regular monitoring keeps pricing, trade spend, and production decisions grounded in reality.
What’s the best margin target for investor readiness?
Investors care less about the number itself and more about your path to sustainable margins. Early-stage brands should show a clear roadmap to 40–50% gross margins, depending on category. By Series A, you should demonstrate improving contribution margin—proof that trade spend, fulfillment, and variable costs are under control. Strong margins signal operational maturity, investor readiness, and room for marketing and growth investment.
How does scaling production actually improve my margins?
Scaling works when fixed costs spread across more units—not because your ingredients suddenly get cheaper. As your production volume grows, you can unlock better co-packer rates, negotiate bulk discounts on packaging, and optimize freight costs per pallet. But variable costs like labor and raw materials rarely drop without intentional renegotiation. True margin improvement comes from disciplined cost tracking, not just higher output.