“We’re busier than we’ve ever been, but it doesn’t feel like we’re making any more money.”
This is a conversation we have with business owners quite often. Their business is growing their team is working hard and they have new clients but they are still not making as much money as they want to.
The first thing people usually do is look for work. They think that if they have customers they will make more money. This is not always true.
From an accountants point of view the first question is not how to get work but if the business is making as much money as it can from the work it is already doing.
In this insight we will go through the things we would look at with a client who wants to make more money and we will give you some practical tips on how to improve your profit margins without working longer hours or getting more customers.
1. Improve Profit Margins by Reviewing Your Pricing
When profits come under pressure, the natural response is often to look for another client, another contract or another source of revenue. Before doing that, it is worth checking whether the work already being delivered is generating the margin it should.
Business costs rarely stand still. Salaries rise, suppliers increase their prices, software and insurance become more expensive, and changes to employment costs, regulation and compliance can all increase the overall cost of running the business. Yet it is surprisingly common for fees to remain unchanged for several years.
The result is often a gradual reduction in profit margins. If your costs have increased over the past three years but your pricing hasn’t changed, your business may already be working harder to generate the same level of profit.
Rather than asking:
How can we win more business?
Ask a different question:
Does our pricing still reflect the business we are running today?
Has the business changed?
| When the fee was agreed | The business today |
|---|---|
| Lower employment costs | Higher salaries, pension contributions and employer costs |
| Simpler systems | More software, licences and administration |
| Narrower service scope | More support, reporting and compliance |
| Fee based on the original service | Is the same fee still being charged? |
A pricing review should not begin with the assumption that every fee needs to increase. The first step is to understand whether your pricing still reflects the true cost of delivering your service.
From an accountant’s perspective, we’d typically compare gross profit margins over time, review the direct cost of delivering each service and identify where workloads have changed without a corresponding change in price.
The outcome may be a fee increase, but it could equally mean redefining what is included, introducing clearer service packages or charging separately for work that falls outside the original agreement.
Before investing more time and money in finding another customer, make sure the work you already have is producing the return your business needs.
Before investing more time and money in finding another customer, make sure the work you already have is producing an appropriate return.
2. Improve Profit Margins by Focusing on Your Most Profitable Work
Improving profit margins isn’t always about winning more business. Sometimes it’s about understanding which parts of your existing business generate the strongest return.
One of the most common assumptions we see is that all revenue is equally valuable. It isn’t.
Two clients can generate exactly the same annual fees, yet contribute very different amounts to the business once the time, resource and support required to service them has been taken into account.
Consider the example below
| Client A | Client B | |
|---|---|---|
| Annual fees | £25,000 | £25,000 |
| Annual delivery time | 180 hours | 310 hours |
| Additional meetings | 2 | 18 |
| Work outside scope | Rare | Frequent |
| Payment | On time | Often late |
| Effective revenue per delivery hour* | £139 | £81 |
*Illustrative figures based on annual fees divided by delivery hours.
Although both clients generate exactly the same annual revenue, Client B consumes significantly more time and resource. More meetings, additional work outside the agreed scope and slower payment all reduce the commercial return, despite the fee remaining identical.
The same principle applies across your services. Some are efficient, repeatable and consistently deliver healthy margins. Others may generate strong turnover but require considerably more time to complete, leaving far less profit once the true cost of delivery has been considered.
This is why we encourage business owners to look beyond turnover alone. Understanding where the strongest returns are generated helps you make better commercial decisions, whether that’s reviewing pricing, refining your service offering or focusing future growth on the work that delivers the greatest value.
Rather than asking…
Which clients generate the most revenue?
Ask…
Which clients generate the greatest return on our time and resources?
The answers are often very different.
3. Don’t Wait Until It’s Too Late to React
One of the biggest challenges with profitability is that it rarely declines overnight. More often, it reduces gradually through a series of small changes that are easy to overlook when you’re focused on running the business.
Supplier prices increase. Staff costs rise. Projects take longer to deliver. Margins tighten little by little. Individually, none of these changes appear significant, but together they can have a noticeable impact on profitability.
The difference isn’t always the problem itself.
It’s how quickly it’s recognised.
Consider these two businesses
| Business A | Business B |
|---|---|
| Reviews key financial trends throughout the year. | Focuses mainly on turnover and the bank balance. |
| Identifies falling margins early. | Doesn’t recognise the issue until the year-end accounts are prepared. |
| Reviews pricing, supplier costs and project profitability before the problem grows. | Reacts after profits have already been affected. |
Neither business experienced a different market.
Neither had different customers.
The difference was having enough visibility to recognise the problem while there was still time to respond.
From an accountant’s perspective, turnover is only one part of the picture. We’d also want to understand whether gross margins are changing, how payroll compares with revenue, whether overheads are increasing faster than income and whether certain clients, services or projects are becoming less profitable over time.
Those conversations don’t need to happen every week, but they do need to happen before the financial year has ended. The earlier changes are identified, the more options there are to respond, whether that’s reviewing pricing, improving efficiency, renegotiating supplier contracts or making operational changes before profitability is significantly affected.
Before moving on, ask yourself:
- Would you know if your gross profit margin had fallen over the last six months?
- Which costs have increased the most during the past year?
- Would you spot declining profitability before your year-end accounts were prepared?
If you’re unsure of the answers, it doesn’t necessarily mean your business has a profitability problem.
It may simply mean you don’t yet have the visibility needed to identify one.viewing pricing, improving efficiency, renegotiating supplier contracts or making operational changes before profitability is significantly affected.
4. Improve Profit Margins Through Better Business Operations
Improving profit margins doesn’t always mean increasing prices or reducing costs. Sometimes, the biggest opportunity is improving the way your business operates.
Every business develops inefficiencies over time. Processes evolve, responsibilities become blurred and tasks that once took minutes gradually become more time-consuming. Individually, these inefficiencies may seem insignificant, but repeated across dozens of jobs or hundreds of customer interactions, they quietly increase the cost of delivering your products or services.
Where time is often lost
| Before | After |
|---|---|
| The same information is entered into multiple systems. | Information is captured once and used consistently. |
| Senior staff carry out work that could be delegated. | Work is allocated to the right people at the right level. |
| Jobs regularly take longer than originally quoted. | Actual delivery time is reviewed and used to improve future pricing. |
| Processes vary between team members. | Core processes are documented and followed consistently. |
Improving efficiency isn’t about asking people to work harder. It’s about removing unnecessary steps, reducing duplication and making better use of the time you already have.
Consider two identical projects, each billed at £5,000.
One takes 100 hours to complete.
The other takes 80 hours.
The client receives exactly the same outcome and pays exactly the same fee. The team doesn’t work longer hours. The only difference is that one business delivers the work more efficiently, improving the profit generated from the same revenue.
This is why operational efficiency should be reviewed alongside pricing and costs. Every hour saved without compromising quality improves the return on the work you’re already doing. Over time, those improvements can increase profitability, create additional capacity and reduce the need to recruit simply to keep up with demand.
Rather than asking:
How can we get more work done?
Ask:
How can we deliver the same work more efficiently?
The answer often has a greater impact on profitability than simply taking on another customer.
5. Plan Ahead Instead of Looking Back
Some of the biggest decisions affecting profitability are made long before they appear in your accounts.
Recruiting a new employee, investing in equipment, moving to larger premises, changing your pricing structure or taking on a major contract can all strengthen a business. Equally, they can increase costs, reduce cash flow or place pressure on profit margins if the wider financial impact hasn’t been considered.
The earlier those decisions are reviewed, the more options are usually available.
A little planning can prevent expensive mistakes
| Decision | Questions to consider beforehand | Potential risk if overlooked |
|---|---|---|
| Recruiting staff | Can the business comfortably absorb the full employment cost? | Payroll grows faster than profitability. |
| Investing in equipment | Is this the right time to invest, and how will it affect cash flow? | Capital is committed too early, reducing financial flexibility. |
| Winning a large contract | Will the additional revenue generate an acceptable profit margin? | Turnover increases, but profit and cash flow come under pressure. |
| Reviewing director remuneration | Is income being extracted in the most tax-efficient way? | Opportunities to improve the overall tax position may be missed. |
The purpose of planning isn’t to delay decisions. It’s to make them with a clearer understanding of the financial consequences.
A simple forecast or scenario review can often highlight risks and opportunities that aren’t immediately obvious. It might show that a new contract requires additional working capital, that recruitment should be phased over several months or that delaying an investment could improve cash flow without affecting growth.
From an accountant’s perspective, some of the most valuable conversations happen before a decision is made, not after it appears in the accounts. By then, many of the available options have already disappeared.
Before making your next significant business decision, ask yourself:
Do we know how this will affect our profitability, cash flow and long-term plans?
If the answer is no, it’s usually worth having the conversation before making the commitment.
What Difference Can Small Improvements Make to Your Profit Margins?
Many business owners assume they need to increase turnover significantly before they’ll see a meaningful improvement in profitability.
In reality, small improvements to your profit margin can often have a much bigger impact than winning another customer.
Consider the example below.
| Current Position | After Improvement | |
|---|---|---|
| Annual turnover | £1,000,000 | £1,000,000 |
| Gross profit margin | 40% | 43% |
| Gross profit | £400,000 | £430,000 |
| Operating costs | £350,000 | £350,000 |
| Net profit | £50,000 | £80,000 |
Illustrative figures.
At first glance, a three percentage point improvement in gross profit margin doesn’t sound particularly significant.
Look at the outcome more closely.
- Turnover hasn’t changed.
- No additional customers have been won.
- The team hasn’t worked longer hours.
- The business hasn’t taken on additional overheads.
Yet net profit has increased by £30,000.
That’s a 60% increase in profit without increasing turnover.
How is that possible?
Because once your operating costs have been covered, much of the additional gross profit generated flows directly through to the bottom line.
This is why improving profit margins can often deliver a greater return than simply chasing more sales. Increasing turnover usually creates additional costs, whether that’s employing more people, purchasing more stock, investing in equipment or expanding your premises. Improving the margin on the work you’re already doing allows you to retain more of the income your business is already generating.
Every recommendation in this insight contributes to that outcome. Reviewing pricing, focusing on more profitable work, identifying issues earlier, improving efficiency and planning ahead may each seem like relatively small changes in isolation.
Together, they can transform the profitability of a business.
Improve Profit Margins by Making Better Decisions
Improving profit margins rarely comes down to one major change. More often, it’s the result of a series of better commercial decisions made consistently over time.
Reviewing your pricing, understanding which clients and services generate the strongest returns, identifying problems before they become expensive, improving operational efficiency and planning ahead can all strengthen profitability without increasing your workload.
Every business is different. For one, the biggest opportunity may be reviewing pricing. For another, it could be improving efficiency, focusing on more profitable work or planning significant decisions more effectively. The important thing is understanding what your financial information is telling you, rather than relying on assumptions.
A growing business isn’t always becoming a more profitable one, and increasing turnover isn’t always the quickest route to improving financial performance.
The businesses that consistently improve profitability aren’t necessarily the busiest.
They’re the ones that make better-informed decisions, backed by timely financial insight and a clear understanding of where value is really being created.
If there’s one message to take away from this insight, it’s this:
Don’t just ask how you can grow your business. Ask how you can make the business you already have more profitable.
Frequently Asked Questions
Yes. Increasing turnover is only one way to improve profitability. Many businesses see significant improvements by reviewing pricing, reducing inefficiencies, focusing on more profitable clients and services, and making better commercial decisions throughout the year. In many cases, improving the return on your existing workload can have a greater impact than simply generating more revenue.
Growing turnover doesn’t automatically result in higher profits. Rising supplier costs, increased payroll, higher overheads, outdated pricing or spending more time delivering the same work can all reduce profit margins. That’s why it’s important to look beyond revenue and understand what it actually costs to generate that income.
Not necessarily. A pricing review should consider more than simply charging more. It should assess whether your pricing reflects the value you provide, the cost of delivering your services and the level of support your clients now receive. Sometimes the solution is increasing prices, but it could also involve redefining your service scope or reviewing how work is delivered.
Revenue only tells part of the story. A profitable client is one who generates a strong return after considering the time, support, administration and resources required to deliver the work. Reviewing client profitability can help identify opportunities to refine pricing, improve efficiency or focus future growth on the areas that generate the strongest returns.
There isn’t a one-size-fits-all answer, but profitability should be reviewed regularly throughout the year rather than only when your annual accounts are prepared. Monitoring key trends such as gross profit, costs and operational performance allows you to identify issues earlier and make informed decisions before they have a significant impact.
A proactive accountant should do more than prepare accounts and tax returns. They should help you understand what’s driving profitability, identify opportunities for improvement and provide commercial advice that supports better business decisions. By combining financial insight with practical recommendations, an accountant can help you build a more profitable and financially resilient business.
Speak to ESDG Accountancy
If your business is growing but profitability isn’t keeping pace, it may be time to take a closer look at what’s happening behind the numbers.
At ESDG Accountancy, we are a Chartered, ICAEW-regulated firm based in Blackheath, and we advise business owners and individuals across London and the South East — including Greenwich, Sidcup, and Tunbridge Wells — we help clients understand the tax, commercial and practical implications of different business structures, ensuring they’re set up in the way that best supports their goals.
We offer a free, no-obligation introductory call to all prospective clients, and we are always responsive — by phone or email.
If you’re looking to improve profit margins but aren’t sure where the biggest opportunities lie, we’d be delighted to help.
Contact us today — call us on 020 4522 9740 or email [email protected].
