Your business margins aren’t just numbers—they are the difference between thriving and barely surviving. If you’re not actively managing and improving them, you’re leaving money on the table, exposing yourself to unnecessary risk, and making growth harder than it needs to be.
At Hoffman Kelly Accountants, we don’t just crunch numbers—we help business owners make game-changing financial decisions that increase profitability, efficiency, and long-term stability. If you haven’t assessed your margins properly, now is the time.
Understanding Your Margins
Margins measure how well your business converts revenue into profit. They show how much money is left after covering direct costs and determine your ability to cover overheads and generate sustainable profit. Two essential calculations:
- Gross Profit Margin: Sales – Cost of Sales. This tells you how profitable your core operations are.
- Gross Profit Percentage: Gross Profit Margin / Sales. A critical measure of financial efficiency.
Why Margins Matter More Than Revenue
Many business owners think more sales mean more profit. That’s not always true. Without healthy margins, higher sales can just mean more effort, more risk, and little to no actual financial gain.
For example:
- A 1% increase in gross margin often has a bigger impact than increasing sales.
- Knowing your margins helps determine your breakeven point, allowing you to make smarter decisions.
- A business with strong margins is more profitable, more stable, and far more attractive to potential buyers.
How Small Changes Lead to Big Profit Gains
Let’s look at how margin improvements directly impact profit:
Scenario 1: No Price Increase
- Revenue: 1,000 units x $100 = $100,000
- Cost per unit: $60
- Gross Profit Margin: $40,000
Scenario 2: 10% Price Increase
- Revenue: 1,000 units x $110 = $110,000
- Cost per unit: $60
- Gross Profit Margin: $50,000 (25% increase in profit)
Scenario 3: 10% Price Increase & 10% Cost Decrease
- Revenue: 1,000 units x $110 = $110,000
- Cost per unit: $54
- Gross Profit Margin: $56,000 (40% increase in profit)
Scenario 4: 10% Volume Increase, 10% Price Increase & 10% Cost Decrease
- Revenue: 1,100 units x $110 = $121,000
- Cost per unit: $54
- Gross Profit Margin: $61,600 (54% increase in profit)
Some businesses even reduce output while maintaining the same profits, leading to improved efficiency and lower operational risk.
Are You Leaving Money on the Table?
Key Questions to Ask Yourself:
- Are your customers and products profitable enough? Split testing and analysis reveal where your strongest margins are.
- When was the last time you reviewed your pricing? If prices haven’t increased in years, your margins are shrinking.
- How do your margins compare to industry standards? If your peers are doing better, you may have hidden inefficiencies.
Buying a Business? Margins Are Everything
Margins should be one of the first things you evaluate in an acquisition. Even small improvements post-purchase can dramatically increase a business’s value.
How We Help You Improve Margins and Profitability
- Price Strategy: We help you implement smart, sustainable price increases.
- Cost Control: We find opportunities to lower your direct costs through better supplier terms and efficiency.
- Profit-Driven Focus: We identify your most profitable offerings and help you maximise them.
- Regular Financial Reviews: We work with you to assess and optimise your margins monthly or quarterly.
Stop Guessing. Start Profiting.
If you’ve read this far, ask yourself: when was the last time you took a hard look at your margins? If you’re unsure, you’re missing opportunities to make your business more profitable and sustainable.
At Hoffman Kelly Accountants, we don’t just give advice—we deliver results. Book a consultation today and take control of your profitability before your competitors do.
Article by Andrew Laing, Manager at Hoffman Kelly
