Revenue up, margins down: finding where the profit was leaking

The context

A B2B distribution company with around forty people and a field sales team of eight. Years of steady revenue growth, a brand customers trusted and a well-stocked warehouse. On paper, a healthy business.

The challenge

For two years, though, margins had been falling while revenue rose. The problem only surfaced at year-end, in the accounts, when nothing could be done about it anymore. Management offered a different explanation every time: purchase prices, competition, product mix. None held up to the numbers, because the numbers simply weren't being looked at month by month.

What we did

• We rebuilt the real margin line by line, combining price lists, discounts applied and purchase costs, rather than stopping at the average margin in the accounts.
• The same figure was read by product line and by individual salesperson, to see where the profit was actually thinning out.
• It emerged that the salesperson with the highest revenue was also eroding the most margin, with price exceptions granted at will that had become systematic.
• We introduced a margin KPI per salesperson alongside the revenue one, with clear discount caps and an alert when they were exceeded.
• The monthly meeting became the place where these numbers were reviewed together, before they turned into a year-end problem.

The numbers behind the case