Maximizing Profit Margins

I've found a pattern for why some agencies are crushing it right now and others are barely making payroll. I did some qualitative research over the past two months in prep for a recent webinar. Combining that with the quantitative research from our friends at Promethean Research, here's what I found. Margin squeeze is real: roughly 73% of agencies have felt the pinch over the past two years, and avg margins have slipped from ~16% down to about 14%. At the same time, the top shops are pulling in profit margins of 38%+. In the past I've able to see external factors that caused the discrepancy, but this time it's mostly internal factors on how they operate. They’re crystal clear about who they serve, what they do, and why they rock. Agencies with strong positioning attract the right clients without having to chase them. Pricing is dynamic, not default. They mix value-based, performance-based, time-and-materials (T&M), and hybrid pricing models based on what is best for the project, most comfortable for the client, and appropriately distributes the risk. They sell outcomes, not time or process. Conversations focus on results and new capabilities, not deliverables or time to ship. AI is woven into everything. These agencies integrate AI into marketing, delivery, and operations for efficiency and scale. And they started years ago. They track key metrics and take action accordingly. Like net profit margin, utilization rate, client retention, revenue per employee, and more. The bottom line is that your focus on verticals or service offerings is less important than your mindset and openness to change. Treat clients as partners, price based on outcomes, and lean into AI and automation. That combination is how the top 20% are beating the average margin by 2–3 times. If your agency’s margins are stuck, don’t look to external factors as the reason. Instead, look inside where you can have an impact. Clarify your positioning, rethink who your best clients are, price accordingly, deliver bold results, and promote the hell out of them. Oh, and weave AI into your DNA. Or don't and let me know how it goes...

A £500k project at 6% margin is worth less than a £250k project at 20%. Chasing volume for the sake of being busy is how contractors go bust: Let me break it down. £500k at 6% = £30k profit. £250k at 20% = £50k profit. Half the turnover. Double the profit. Less risk, less stress, less resource tied up. But most contractors chase the bigger number because £500k sounds better than £250k. Because turnover is what people brag about. Because being busy feels like progress. It's not. Here's what actually happens when you chase volume: You take on projects with thin margins just to keep the team busy. Then something goes wrong; a variation, a delay, a difficult client and that 6% margin disappears. Now you're working for free. Or worse, losing money. Meanwhile your cash flow is tied up in a project that's not making you anything. And you've got no capacity when the right opportunity comes along. I've seen it happen repeatedly. Contractors with impressive turnover who are broke. Contractors with modest turnover who are thriving. The difference? Margin discipline. You should say no to projects that don't hit our margin threshold, even when it's tempting. Even when we want the work. Because one bad project at thin margins can undo three good ones. Protect your margins like your business depends on it (because it does). Volume is vanity → margin is sanity → profit is reality. P.S. Next time someone brags about their turnover, ask them about their margins. That's the number that actually matters.

The Economics of QSR: How to Increase Margins Without Raising Prices 💰🍔 In QSR franchising, profitability isn’t just about boosting sales—it’s about maximizing margins. With rising labor costs, supply chain challenges, and competitive pricing pressures, simply raising menu prices isn’t always the best move. Instead, smart operators find ways to cut costs, optimize efficiency, and increase revenue per customer without scaring them away with higher prices. So, how can QSRs increase margins without raising prices? 🔥 1. Smart Menu Engineering ✅ Highlight high-margin items with strategic menu placement. ✅ Bundle items to increase average check size. ✅ Streamline the menu—fewer SKUs mean lower waste and faster prep. 💡 Lesson: The right menu design boosts revenue without added costs. 📊 2. Optimize Labor Efficiency ✅ AI-powered scheduling ensures the right staff at the right time. ✅ Cross-training employees increases productivity without adding headcount. ✅ Self-order kiosks & mobile ordering reduce front-line labor needs. 💡 Lesson: The best QSRs maximize labor efficiency without sacrificing service. 🥩 3. Control Food Costs Without Cutting Quality ✅ Leverage AI-based inventory tracking to reduce waste. ✅ Negotiate with suppliers for bulk discounts & alternative sourcing. ✅ Portion control & recipe standardization prevent overuse of ingredients. 💡 Lesson: Small cost reductions in food waste can lead to huge margin improvements. 🚗 4. Drive More Off-Premise Sales ✅ Upsell on mobile apps & drive-thru screens to increase ticket size. ✅ Optimize drive-thru & curbside pickup for faster turnover. ✅ Delivery-exclusive items & promotions increase off-premise profitability. 💡 Lesson: More transactions outside the store = lower overhead per order. 🔑 The Bottom Line? Smart QSRs Focus on Efficiency, Not Just Price Hikes. The most profitable QSRs aren’t the ones with the highest prices—they’re the ones with the smartest operations. Better margins come from better systems, better menus, and better cost control. 💬 What’s the best margin-boosting strategy you’ve seen in QSR? Let’s discuss! ⬇️💡 #QSR #FranchiseProfitability #RestaurantMargins #QuickServiceRestaurants #RestaurantOperations #FranchiseGrowth #FoodCostManagement #RestaurantInnovation #FranchiseDevelopment #RestaurantFinance

Builders are the new Rolex—so why are margins still 10%? Good builders in NSW, VIC and QLD are like Rolex watches: scarce, wait-listed and in demand across most sectors. Yet many still tender at 10% or less while head-office costs climb—quietly eating those margins alive. The trap: most quotes still use markup, not margin. Example: Direct cost $1,000,000. Overheads 8% = $80,000. Quote at “10%” markup = $1,100,000 → profit after overheads ≈ $20,000 (~1.8% margin). To bank ~$100,000 profit with those overheads, the price needs to be $1,180,000 (≈ 8.5% margin after overheads). How to fix it (now): 1. Price overheads explicitly. Separate prelims/site costs and head-office recovery so they’re visible and defensible. 2. Build to margin, not from markup. Use: direct cost + overhead recovery + target profit in your estimating templates. 3. Contract for cost movement. Escalation/rise-and-fall clauses, tight provisional sums, and clean variation pathways. 4. Protect time = protect profit. Robust EOT notices, clear float ownership, realistic programs to avoid LD blow-outs. 5. Train PMs to say “no”. Stop scope creep and undocumented directives; insist on written instructions and approved variations. 6. Audit monthly. Track forecast final margin vs tender margin by job; if it’s drifting, escalate early (claims, sequencing, resourcing, client comms). 7. Use SOP Acts properly. Consistent, compliant claims in NSW/QLD/VIC protect cashflow and negotiating leverage. Bottom line: If clients are lining up like a Rolex waitlist, your pricing and contracts should reflect your value and risk—not last year’s costs. Move from “10% markup” to true margin and lock in contractual protections so your target doesn’t become 1.8% in reality.

Gross margin determines destiny. I mean that literally. At Suja Life in 2018 we had two product lines on shelf. Kombucha and wellness shots. On the surface both were "working." Both were growing. Under the surface, completely different businesses. Kombucha: outsourced to a co-man, gross margin around 12%. Wellness shots: produced internally, gross margin around 60%. We killed the kombucha and poured resources into the shots. Company-wide gross margin moved from roughly 32% to 40% with that ONE product-mix decision and ZERO revenue growth. The economics of the entire business transformed. CPG is a "Penny Profit" business. The pennies matter. And the 48 pennies between those two products mattered enormously. The math every founder should be running: End of Year 1: 40% gross margin floor. Below that, the math gets tight very fast. End of Year 3: 50% gross margin target. The best brands operate at 50-60%. Below 35%: danger zone. After trade spend and operating costs, you're burning cash whether you see it yet or not. And calculate it on NET revenue. Net of trade, net of deductions. If you're using gross revenue, you're lying to yourself. Revenue without margin is ego. If your gross margin is below 40%, that's the most important problem in your business. Not your next round. Not your next retailer. Your margin structure. Fix it before you scale. Scaling a bad margin just makes the hole bigger.

Most brands leave up to 25% extra profit on the table because they test prices the wrong way. The wrong way = Changing prices and measuring sales impact week over week. For example, you raise your price from $150 to $175. Sales stay flat. You think, "great, we can charge more with minimal impact." No. Not so fast. You just missed a massive opportunity because you had no control group running at the same time. Here's how to test prices correctly: Split your traffic into three groups that run simultaneously and conduct a straddle test. The same amount up and down. Group A (Control): Your current price ($150) Group B (-25%): $120 Group C (+25%): $180 All three run at the same time. Same traffic. Same day. Same market conditions. This eliminates bias, seasonality, and other external factors. How to measure success: Don't pick the winner based on revenue or conversion rate. Pick the winner based on profit per visitor. A lower price might drive more volume, but it also eats at your margins. Once you find a winner (let's say $180), run a second test. Test $175 vs $180 vs $185. That’s how you find the exact price point where you maximize profit without sacrificing volume. Now go and test those prices. And as always… don’t guess. Know!

How We Added 14% to Our Clients' Profit by ONLY Changing Efficiency Targets There's ONE lever most brands aren't pulling: SKU-specific efficiency targets based on merchandising strategy. Every product has different: - Landed costs - Inventory constraints - Demand levels Yet most D2C brands apply identical efficiency targets across all SKUs. Let's look at two t-shirts with the same $50 MSRP: SKU #1 | Black T-Shirt Landed cost: $9/unit Inventory: 5,000 units Demand: HIGH Profit calculation: $50 - $9 - $28.50 = $12.50/unit → Optimal CPA target: $28.50 SKU #2 | Red T-Shirt Landed cost: $10/unit Inventory: 7,500 units Demand: LOW Profit calculation: $50 - $10 - $32.50 = $7.50/unit → Optimal CPA target: $32.50 Results over a 3-month period... Scenario 1: SKU-Specific Targets Black T-shirt: 5,000 units × $12.50 profit = $62,500 Red T-shirt: 7,500 units × $7.50 profit = $56,250 TOTAL PROFIT: $118,750 Scenario 2: Blended $30 CPA Black T-shirt: 4,200 units × ($50 - $9 - $30) = 4,200 × $11 = $46,200 Red T-shirt: 5,800 units × ($50 - $10 - $30) = 5,800 × $10 = $58,000 TOTAL PROFIT: $104,200 Unsold inventory: 800 black + 1,700 red = 2,500 units Capital tied up: $24,200 That's a 14% profit increase ($14,550) plus better inventory performance! Key insight: Accept lower margins on slow-moving products to convert inventory to cash FASTER, then reinvest in winners. This simplified example excludes: - LTV and repeat purchase value - Cash position impact - Seasonal demand fluctuations - Product category halo effects Every product in your catalog deserves its own efficiency target. Period. Here's your action plan: 1. Map your entire product catalog by profit margin, landed cost, and inventory position, cash position and 90D LTV. 2. Set aggressive CPAs on best-sellers with high margins. 3. Allow higher CPAs on slow-moving inventory to convert it back to cash. 4. Structure your ad campaigns by SKU (not product type) to control these variables. 5. Measure SKU-level CPA instead of blended account metrics. Brands who implement this approach see 10-20% profit improvements within 60 days, plus dramatically improved inventory turnover. The old way: "Our target ROAS is 2.5x." The smart way: "Our high-margin bestsellers target 3.5x while our overstocked items target 1.8x." Which approach are you using?

A construction business turning over £1.2M a year making 10% net margin is generating £120k profit. The same business two years prior was turning over £600k making 20% and generating exactly the same. Same profit from twice the turnover, with twice the overheads, twice the complexity, and twice the risk. This is what happens when a construction business grows without the margin growing with it. Revenue increases and the cost base expands to support it. The additional profit the growth was supposed to generate gets absorbed before it reaches the bottom line. The director is working harder, managing more people, and taking on more risk than they were two years ago. The business looks more successful from the outside but it's less efficient than it was when it was smaller. Before you chase the next milestone in turnover, it's worth understanding what your current net margin is and what's happening to it as the business grows. If you aren't receiving any reporting during the year, you're not going to find out until the year-end accounts arrive. By then the margin has already declined and there's nothing you can do to recover it. If your net margin is declining as the business grows, more revenue isn't the answer. Improving the margin on the work you're already doing is.

Is your marketing team optimizing for ROAS—or POAS (Profit on Ad Spend)? If your products have varying contribution margins, your marketing strategy needs to reflect that. I recently spoke with the VP of Performance Marketing at a major e-commerce company with a 9-figure marketing budget. Their team of 120 marketers was optimizing based on ROAS. While they tracked COGS and gross margins by product category and occasionally reviewed POAS, they failed to integrate contribution margins by product and channel into their daily decision-making. The result? A recent stock limitation shifted their product mix, leading to low-margin sales.  ROAS looked impressive, but the actual contribution margin was disappointing. Now, the VP is really under pressure. Marketing has shifted from "growth at all costs" to "sustainable growth."  It’s crucial to adjust target metrics accordingly to protect the marketing team and leadership from CFO scrutiny. The key? Operationalize backend metrics (e.g., Contribution Margins, LTV) and Measurement (MMM, Incrementality, MTA) for daily optimization. #PerformanceMarketing #DigitalMarketing #ROAS #GrowthMarketing