Turnover Up, Profit Down? Find Your Profit Leaks
If your sales are rising but your bank balance isn’t, you’re not alone.
Many UK limited company directors and service-based contractors feel stuck on a treadmill, working harder, invoicing more, yet not seeing that effort show up as profit or personal drawings.
The reason?
Small, persistent “profit leaks” that quietly erode margins over time. This guide gives you a clear way to diagnose where profit is disappearing and practical steps to plug the gaps.
The Hamster Wheel: Why More Sales Don’t Always Mean More Profit
Turnover is vanity; profit is sanity; cash is reality. Revenue growth can mask rising delivery costs, discounting, scope creep, inefficient processes, and unbilled time.
Micro erosions add up: a 2% discount here, 15 extra minutes per job there, a supplier price rise not passed on—over months, they compound into flat or falling profit despite higher sales.
Focus on unit economics: Know the true cost to deliver each product/service, the margin per unit/hour, and whether the mix you’re selling is actually profitable.
A simple diagnostic to start this week
Pull a rolling 12-month P&L and segment by product/service line.
For your top five services, calculate:
Gross margin % = (Sales – Direct Costs) / Sales
Contribution per hour (for services) = (Price – Direct Costs) / Delivery Hours
Compare last quarter vs the prior quarter. Are prices flat while costs or hours per job have crept up?
List your top 10 customers. Which ones have the lowest margin or require the most rework/handholding?
Leak #1: Your Pricing and Margin Isn’t Watertight
Pricing that hasn’t kept pace with inflation, wage rises, software costs, or supplier increases can turn a profitable service into a break-even one. What to review:
Rebuild your cost-to-serve: Include direct labour (fully loaded with employer NIC, holiday, pension), materials/subcontractors, software used to deliver, payment/merchant fees, and travel.
Set margin guardrails by service: Minimum acceptable gross margin (e.g., 55–65% for many services) and a target contribution per hour.
Check your effective rate: Total invoiced ÷ total hours (including rework, scope creep, and overruns). If your “headline” rate is £100/hour but your effective rate is £72/hour, you have a pricing or delivery problem.
Update terms: Clear scope, change-order triggers, staged billing, deposits, and late-payment policies reduce write-offs and financing costs.
Quick wins
Adjust prices on renewal dates first; then phase increases to existing clients with clear value communication.
Introduce good-better-best packages to protect margin while giving choice.
Stop selling your lowest-margin service unless price or scope can be reset.
Tie price reviews to supplier increases or wage changes to avoid lag.
Leak #2: The Hidden Siphon of Inefficiency
Outdated processes and internal bottlenecks quietly siphon profit, even when your pricing is sound. An efficiency checklist
Time to invoice: Are jobs invoiced same day or within 24–48 hours?
Rework rate: How often do you redo tasks? Track defect/rework hours each week.
Handoffs and waiting: Too many approvals or unclear ownership cause idle time.
Manual admin: Double entry, copy/paste, and paper processes consume high-cost hours.
Supplier performance: Late deliveries, small order runs, and frequent price changes inflate your costs.
Subscription sprawl: Old tools no one uses, duplicate apps, and premium tiers you don’t need.
Payment friction: Missing direct debit or online payment options mean slower cash and more chasing.
Stock and WIP (if applicable): Excess stock ties up cash; unmanaged WIP hides delays and margin leaks.
Meeting creep: Standing meetings with no decisions cost focus and billable capacity.
Process upgrades that pay for themselves
Move to cloud-based accounting with bank feeds and rules to cut bookkeeping admin and errors.
Use standard operating procedures and checklists for repeatable work.
Template your proposals, statements of work, and onboarding to reduce rework.
Implement purchase orders and price lists to control buy costs and prevent margin drift.
Automate reminders for invoices and introduce direct debit to shorten the cash cycle.
Review software quarterly: cancel or downgrade what you don’t need.
Leak #3: You’re Paying for Non‑Billable Time
For service businesses, utilisation is everything. If too much of the week is non-billable quoting, admin, fixing mistakes, chasing debtors, then your effective hourly rate collapses. Start with a two-week time audit
Track hours by category: billable delivery, account management, sales/marketing, admin/finance, rework.
Calculate utilisation = billable hours ÷ total hours. Many small firms target 70–80% for delivery roles and 50–60% for owner-directors who also sell/manage.
Identify time traps: email triage, debt chasing, bookkeeping, payroll, manual reporting, content creation that could be batched or delegated.
Fixing non-billable leakage
Batch admin in short windows; protect “deep work” blocks for revenue activities.
Pre-qualify leads to reduce unproductive quoting.
Productise common services (defined scope, price, timeline).
Move to retainers or fixed fees with clear change control to reduce scope creep.
Delegate or outsource low-value but essential tasks (credit control, bookkeeping, payroll, VAT returns, management accounts).
Plugging the Leaks: Smart Outsourcing and Your Action Plan
Outsourcing non-core finance functions can be cost-effective versus hiring and gives you specialist capability that scales with your business. The goal is to free the owner’s time for high-value work and to tighten financial control so margin improvements stick. What to outsource first
Bookkeeping and month-end close: Accurate, timely numbers reveal margin drift early.
Payroll and pensions: Zero-tolerance area for errors and a common time drain.
VAT returns and compliance: Avoid penalties; recover the right VAT at the right time.
Credit control: Systematic invoice reminders and follow-up reduce payment time and bad debt.
Management reporting and cash flow forecasting: Turn data into decisions, spot profit leaks by service, client, and team.
Why J‑Benn Finance?
We design your margin guardrails and pricing checks so you stop undercharging.
We implement efficient, automated finance processes (in Xero and supporting tools) to cut admin hours and rework.
We can provide clear, regular reports, job/service margins, utilisation, and cash conversion, so you can make fast, confident decisions.
Fractional CFO support is available when you want strategic guidance on pricing, capacity planning, and growth investments without the full-time cost.
Your 3‑Step Action Plan
Review
Rebuild cost-to-serve for your top five services.
Set margin guardrails and minimum acceptable pricing.
Identify your three worst offenders (service, client, or process) and choose one quick win each.
Track
Run a two-week time audit to reveal non-billable time.
Add three metrics to your monthly dashboard: utilisation %, contribution per hour, and days sales outstanding (DSO).
Start job-costing for any project over a set threshold
Review
Hand off bookkeeping, payroll, VAT, and credit control to specialists.
Standardise proposals/SOWs and implement change control to protect scope and margin.
Revisit pricing at renewal and introduce packages to preserve margin.
A quick example
You increase turnover by £20,000 per quarter, but delivery hours rose by 180 due to rework and scope creep, and supplier costs rose £3,000.
Result: Contribution per hour fell from £62 to £48, and Debtor Days slipped from 28 to 41 days, profit and cash both deteriorate despite higher sales.
After price resets (+6%), automation of invoicing, and outsourced credit control, utilisation rises 8 points and Debtor Days returns to 28 days. Contribution per hour climbs back above £60 and cash stabilises.
Final Thoughts
Revenue growth only matters if it turns into profit and cash. With clear numbers, tighter processes, and smart delegation, you can step off the hamster wheel and see your hard work reflected in your bank balance.
Your time is too valuable to be wasted on activities that don’t generate profit. If you’re ready to turn hard work into real financial growth, let’s identify and fix your profit leaks together. Book a free, no-obligation strategy call with J‑Benn Finance today - HERE
