Design a cost structure that scales

Who this is for

Founder led lower-middle market companies with 5 to 50 million in annual revenue that are planning growth with discipline.

The quick answer

COGS and some selling costs will move with revenue. Delivery labour, materials, shipping, and partner fees are common examples. General and admin should grow slower than revenue as you scale. Set simple guardrails for each function as a percent of revenue and review them each quarter.

The method in seven steps

Map costs to behaviour
Classify lines as variable, step variable, or fixed. Delivery labour often behaves like step variable.
Set functional guardrails
Publish target percent ranges by function. Sales and marketing, operations, product, general and admin. Use your unit economics to inform the ranges.
Link hiring to revenue cases
Tie headcount adds to your base, upside, and downside cases so spend matches demand.
Agree on spend gates
Above a spend level or outside a guardrail, require a short case and an approval. Keep rules simple so they move at the speed of the business.
Watch the margin bridge
If cost effect is rising, drill into which lines drove it and whether they should scale with revenue.
Use vendors and automation for peaks
Add variable capacity before fixed cost when demand is uncertain.
Review quarterly
Compare actuals to guardrails and adjust ranges as your model matures.

Example

A firm kept general and admin under twelve percent while revenue grew by using fractional finance and outsourced creative work until volume justified in house roles.

Pitfalls and fixes

Treating delivery labour as fully fixed. Plan step changes.
Guardrails that nobody knows. Publish them and review quarterly.
Freezing spend during growth. Use cases to add capacity with confidence.

Checklist

Costs classified by behaviour
Guardrails by function
Hiring linked to scenarios
Spend gates defined
Quarterly review booked