Imagine a monthly management meeting. Sales are up 18%. New customers are coming in, and the team is busier than ever.
Then the CFO shows the next slide: gross profit is down.
How can the company be selling more while making less on each sale? Often, the answer is pricing.
Suppose a service sells for $10,000. Two years ago, it cost about $6,000 to deliver. Since then, salaries have risen, software costs have increased, customers require more customization, and more time is spent on each account. Today, that same service costs $8,000 to deliver. The price stayed the same. The business did not.
The Price Stayed the Same. The Margin Did Not.
Companies often leave prices unchanged because raising them feels risky. But while the price stays fixed, costs keep moving.
Salaries rise. Suppliers increase prices. Development becomes more complex. Customers expect more service. Discounts become more common.
Each change reduces gross margin.
Eventually, the company may need to sell much more just to make the same profit it made before.
Another warning sign is what happens when a new customer joins. If every new sale also requires more staff, more support, and more customization, revenue may be growing without profitability improving.
At that point, low pricing is no longer supporting growth. It may be making growth more expensive.
How Danoy’s External CFO Can Help
Danoy’s external CFO can review profitability by product, service, or customer segment, track changes in costs, and measure the impact of discounts.
From there, management can model different options. What happens if prices rise by 5% or 10%? How many customers could be lost while profitability still improves? Should prices rise across the board, or only for services where margins have eroded?
Sometimes the answer is to raise prices. In other cases, the real issue is cost structure or service delivery.
The important thing is not to keep selling at a price that was set for a business that no longer exists.
If sales are growing but profitability is not, it may be time to review not just how much you sell, but at what price.
Want to know whether your pricing still fits your business today? Get in touch with Danoy.