Most business owners think more sales is the answer. The reality is that chasing turnover without watching gross profit just makes you busier, not wealthier. Gross profit is the most underused lever in business, and even small changes here can create big results.
Why Gross Profit Matters
Gross profit is the difference between what you sell and what it costs you to deliver. It is the simplest measure of whether your jobs are truly profitable. Every extra dollar of gross profit goes almost entirely to your bottom line. That is why a 1 to 2 percent improvement can be worth tens of thousands.
On $2 million of sales, a 2 percent increase in gross profit margin equals $40,000 more profit. No extra customers. No extra staff. Just smarter pricing and tighter control of costs.
Case Study: Finding $75,000 Without More Work
We worked with a client, Dave, who runs a service business in the trades sector. His sales were $3.2 million, but he could not understand why the profits were not flowing through.
When we went through his jobs line by line, we found a clear problem. His team were doing all sorts of extras for free, moving furniture, waste disposal, and spending extra hours on site. Across the year this absorbed over 700 hours of labour, worth about $95,000 of gross profit.
By putting consistent pricing in place and itemising the extras, Dave lifted his gross profit margin from 18 percent to 20.5 percent. The result was an extra $75,000 profit in one year, with no increase in sales. That extra cash has since been used to build a buffer for tax payments and reinvest in his business.
The Real Lesson
The instinct is always to grow sales, but without gross profit discipline that growth does not translate into wealth. A 10 percent lift in sales at poor margins may add less to your bottom line than a 2 percent lift in gross profit on your current volume.
We see the same pattern across industries. Restaurants giving away sides. Builders undercharging for variations. Service businesses overdelivering on fixed fees. Each one looks small at the time, but it adds up to serious money.
Three Steps to Get Started
Review recent jobs and calculate the actual gross profit on each. Compare it with what you quoted.
Identify services you currently do for free. Put a fair price on them.
Set a target gross profit margin and measure it monthly.
Gross profit is the simplest lever you can pull. Small improvements here create real results without working harder or chasing more customers. The businesses that consistently review and lift their margins are the ones that generate real wealth.
If you are not sure where the gaps are in your numbers, that is where we come in. We help you uncover the hidden leaks and turn them into profit that actually stays in your pocket.
Contact Us
Contact us today to discuss on 07 827 9130 or email us. Our office is in Cambridge, NZ, but distance is no problem. We have many international and national clients.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
