The Problem
You are winning high-value contracts and increasing top-line revenue, but your gross profit margins are shrinking, leaving no room to cover corporate overhead.
The Solution
Transitioning from volume-based pricing to true activity-based costing.
Chasing volume without tracking true cost-to-serve is a fast path to operational stress. If your pricing strategy doesn’t factor in hidden operational costs—such as specialized client onboarding, extensive account management, or expedited shipping—your largest clients might actually be your least profitable.
To protect your margins, calculate your true gross profit per client or product line. Take your revenue, subtract direct costs such as materials and labor, and allocate a realistic portion of operational overhead to that specific account. If a high-volume client yields low margins while consuming 80% of your customer service team’s time, it is time to renegotiate terms or adjust your pricing model to reflect the real cost of doing business.
