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When Payroll Eats the Business: Inside a Mid-Market Consumer Products Turnaround
Most turnarounds don't start with marketing fixes or strategy sessions. They start with a calculator.
A few months ago, I stepped into a mid-market consumer products brand doing under $10M a year. From the outside, it looked healthy -- loyal customers, strong reviews, recognizable product. Under the hood, it was bleeding $70,000 every month.
The core issue wasn't mysterious. Payroll alone was sitting at roughly 25% of revenue. At their gross margins, breakeven wasn't possible. SG&A had quietly swallowed the P&L.
This episode breaks down the real math behind why product companies get stuck, why good brands drift into multi-year margin problems, and what it actually takes to bring them back.
Inside the Episode:• The setup: A strong D2C + dealer brand that looks fine on the surface but can't win the math • The denial loop: "We can't cut managers," "We need everyone for Q1," "Next year sales will grow" • The math problem: Why 25% payroll doesn't work with 45% gross margins • The rule of thumb: – Payroll should live around 10–15% of revenue – Total SG&A needs to stay ≤25% of revenue • The turnaround plan: – $500k+ in payroll cuts, not $250k – Right-sizing roles, spans of control, CS and warehouse – Cutting low-ROI contractors and software creep – Cleaning up SG&A leaks beyond payroll • The real fix: Designing a right-sized org that can actually produce margin • How to avoid this problem entirely: – Stay lean on the way up – Track revenue per employee – Rebuild your SG&A budget from scratch every year
Why This MattersIn almost every turnaround I lead, half the margin recovery comes straight out of SG&A -- and payroll is the biggest lever. The earlier you see the warning signs, the fewer tough calls you'll have to make later.
If you're running a physical product brand and payroll is over 20% of revenue, you don't have a marketing problem. You have a math problem. And the sooner you address it, the sooner the business starts working again.
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By Luke Peters
5
2929 ratings
Most turnarounds don't start with marketing fixes or strategy sessions. They start with a calculator.
A few months ago, I stepped into a mid-market consumer products brand doing under $10M a year. From the outside, it looked healthy -- loyal customers, strong reviews, recognizable product. Under the hood, it was bleeding $70,000 every month.
The core issue wasn't mysterious. Payroll alone was sitting at roughly 25% of revenue. At their gross margins, breakeven wasn't possible. SG&A had quietly swallowed the P&L.
This episode breaks down the real math behind why product companies get stuck, why good brands drift into multi-year margin problems, and what it actually takes to bring them back.
Inside the Episode:• The setup: A strong D2C + dealer brand that looks fine on the surface but can't win the math • The denial loop: "We can't cut managers," "We need everyone for Q1," "Next year sales will grow" • The math problem: Why 25% payroll doesn't work with 45% gross margins • The rule of thumb: – Payroll should live around 10–15% of revenue – Total SG&A needs to stay ≤25% of revenue • The turnaround plan: – $500k+ in payroll cuts, not $250k – Right-sizing roles, spans of control, CS and warehouse – Cutting low-ROI contractors and software creep – Cleaning up SG&A leaks beyond payroll • The real fix: Designing a right-sized org that can actually produce margin • How to avoid this problem entirely: – Stay lean on the way up – Track revenue per employee – Rebuild your SG&A budget from scratch every year
Why This MattersIn almost every turnaround I lead, half the margin recovery comes straight out of SG&A -- and payroll is the biggest lever. The earlier you see the warning signs, the fewer tough calls you'll have to make later.
If you're running a physical product brand and payroll is over 20% of revenue, you don't have a marketing problem. You have a math problem. And the sooner you address it, the sooner the business starts working again.