It’s one of the things owner-MDs tell us most. Sales are up on last year, the team is bigger, everyone is busier than ever, and yet the profit at the bottom of the accounts has barely moved. It’s one of the clearest signs a business has outgrown the way it’s run.
The good news is that the leak is usually in a handful of places, and you don’t need a finance team to find it. With your own figures and an AI assistant, you can narrow it down in an afternoon.
Where profit usually leaks in a growing business
It’s rarely one big thing. Usually it’s a few small ones that grew with the business:
1. Discounts that started as one-offs and became the norm.
2. A handful of customers who cost more to serve than they pay.
3. Prices that haven’t kept up with supplier increases.
4. Work done twice: rework, returns and re-deliveries.
5. Overheads that crept up with headcount, such as software, vehicles and space.
Step 1: Get the numbers out
You need three exports from systems you already have: sales by customer for the last 12 months, sales by product or service, and your cost of sales for the same period. A simple spreadsheet export is fine. If your figures don’t agree with each other, start with getting to one set of numbers you trust. Use a business account for your AI assistant and check its data settings before sharing customer or financial details.
Step 2: Ask AI to rank margin, not sales
Most reports rank customers by sales. That’s the wrong question when profit is the problem. Ask for margin instead.
“Here are 12 months of sales by customer and our cost of sales. Work out the gross margin for each customer, rank them from best to worst, and list the ten customers where we make the least for the work we do. Show your working so I can check it.”
If you don’t have costs by customer, ask it to use average margin by product and to say clearly where it has made assumptions. It won’t be perfect. It will tell you where to look.
Step 3: Check prices against costs
“Here is our current price list and our supplier costs from this year and last year. Show me every product where our costs have gone up by more than our prices, and by how much.”
This one often surprises people. Prices get reviewed when someone remembers to, while supplier increases arrive every few months.
Step 4: Look for the discount habit
“Here is a year of invoices showing list price and the price we charged. Tell me what share of sales went out below list price, which customers or salespeople account for most of it, and how much it added up to.”
What AI can’t do for you
AI will find the patterns. Deciding what to do about them is still your job. Repricing a long-standing customer, stopping a discount or dropping a product line are MD decisions, and they’re easier with the numbers in front of you. Always check the figures against your accounts before acting on them.
A typical example
Take a business turning over £3m at a 30% gross margin. If two points of margin are leaking through discounts and prices that haven’t kept up, that’s £60,000 a year that never reaches the bottom line. Swap in your own numbers.
Finding the leak is the first step. Keeping it fixed usually means one set of numbers you trust and a monthly routine to check them. Our Sales Report Setup builds that routine for a fixed price, and getting the numbers right is part of what we do in MD Advisory. We’re not IT people. We’ve sat in the MD’s chair and built the systems behind it, and we’ll talk to you in plain business terms.
Growing pains like this are normal in a business that has grown quickly, and they’re fixable. Take the free Growing Pains Check to see where your business stands in three minutes, or book a free call about a Growing Pains Diagnostic: half a day with you and your business, then a written 90-day plan with the three changes that matter most.