Margin: why it is critical for any business
Margin is the difference between what you collect from a client and what you spend to serve them. It is the single most important measure of business health. When margin falls, you grow only on paper: revenue rises, but profit stays flat or even shrinks.
Owners often ask why margin matters more than revenue. Because margin determines your ability to:
- Invest in growth (marketing, product, people)
- Survive a downturn (at a 10% margin, three months without clients leaves you insolvent)
- Raise capital (investors look at margin first)
- Pay yourself (the owner)
Between 2022 and 2024 we helped eight companies grow their margins by 15–25%. Below is a breakdown of four real cases, with concrete numbers and approaches.
Case 1: E-commerce platform (margin 15% → 28%)
The starting point
The company launched a marketplace with 5,000 products from a range of suppliers. Revenue was ₽50M a year, but margin was only 15%, because the catalogue was fragmented — full of products at a 5–10% margin that were hard to sell and took up space on the site.
Analysis: we ran an ABC analysis by profit (not by revenue). We found that:
- Category A (20% of products): delivers 80% of profit, margin 35–45%
- Category B (30% of products): margin 15–20%
- Category C (50% of products): margin below 10%, often loss-making
The decision and the results
Step 1: we removed Category C entirely (2,500 products). The fear was a loss of revenue, but in reality revenue fell by only 8%, because these products were barely selling.
Step 2: we reworked the mix in Category B: raised prices by 15–20%, dropped the dullest products, and added popular brands with a higher margin.
Step 3: we improved site navigation to give Category A products (high margin) priority placement.
Results over six months:
- Revenue: was ₽50M a year, became ₽52.5M (up 5%, against expectations)
- Margin: rose from 15% to 28%
- Absolute profit: was ₽7.5M, became ₽14.7M (doubled)
- Average site load time improved (fewer products means a faster site)
Key takeaway: not all clients are equally valuable. We cut the unprofitable ones (low-margin products) and won by accident: only the loyal, profitable customers remained.
Case 2: B2B SaaS (margin 20% → 35%)
The starting point
A SaaS company for logistics management, with revenue of ₽100M a year. But margin was only 20%, because the large clients (40% of revenue) demanded customization, heavy support, and bespoke terms.
COGS analysis: we looked at the cost of serving clients of different sizes:
- Large client (₽1–5M revenue a year): needs two support staff, customization, negotiation; margin can be 5–10%
- Mid-sized client (₽100–500K a year): standard onboarding process, margin 25–35%
- Small client (₽50–100K a year): can be loss-making because of the fixed costs of support
The decision
Step 1: we raised prices for new large clients by 30–40%. At the same time we required them to use standard integrations (no customization, no extra support). We closed off special terms — everyone pays the list rate.
Step 2: we set a minimum service volume: a contract of at least ₽1M a year (previously we took clients from ₽200K). For clients below that threshold, we moved to self-service (documentation, video, a community forum).
Step 3: we created two products: Standard (for SMB) and Enterprise (for large accounts). Enterprise costs more but includes priority support and can be customized (for an additional fee).
Results over nine months:
- Revenue: was ₽100M a year, became ₽105M a year (+5%; we lost some large clients, but this was offset by the mid-sized ones)
- Margin: rose from 20% to 35%
- CAC payback period: was 18 months, became 11 months (clients pay more, so payback is faster)
Key takeaway: large clients are not always the most profitable. They often demand so much attention that the margin turns negative. You either price them correctly (build the cost of support into the price) or walk away.
Case 3: Manufacturing (margin 18% → 32%)
The starting point
A cable manufacturer with revenue of ₽300M a year. Margin was only 18%, because the technology was outdated, there was a lot of rework, defects ran at 8%, and production losses were high.
Cost-of-goods analysis:
- Raw materials: 40% of price
- Direct labour: 20%
- Defects (8%) and rework: 12%
- Energy, depreciation, other: 10%
- Margin: 18%
The decision
What we optimized:
- Defects: we introduced quality control at every stage (previously checks were done only at the end). Result: defects fell from 8% to 2%. Saving: 1.8% of revenue
- Raw materials: we moved to bulk purchasing (in cooperation with a competitor). We negotiated a 5–7% discount with suppliers. Saving: 2–2.8% of revenue
- Energy: we replaced equipment with more efficient units (a ₽10M investment). Payback through lower energy use: 2–3 years
Results over 18 months:
- Cost of goods: fell by 6–7% (1.8 + 2.5 + 1.5 plus other improvements)
- Revenue: held at ₽300M (no growth, but that is normal for manufacturing)
- Margin: rose from 18% to 32%
- Absolute profit: was ₽54M, became ₽96M (up 1.8x)
Key takeaway: optimizing cost of goods takes investment and time, but the effect is durable. For companies like this we recommend starting with quick wins (quality control, supplier negotiations), then moving on to capital-intensive investment.
Case 4: Consulting (margin 40% → 55%)
The starting point
A strategy consulting firm with revenue of ₽80M a year and a 40% margin. At first glance this looks healthy, but the margin was diluted: a lot of small projects (₽1–3M) that required as much preparation and as many meetings as the large ones (₽20–50M).
Productivity analysis: in a month, one senior consultant can handle either:
- 5 small projects (₽1–3M each), revenue ₽12M, margin 35% (many meetings, much preparation)
- 2 large projects (₽20M each), revenue ₽40M, margin 55% (a more standardized process, greater scale)
The decision
Portfolio reshaping strategy:
- We set a minimum project size of ₽5M (previously we took projects from ₽500K). Small projects were referred to partners or simply declined
- We created standard service packages: Strategy Audit (₽5M), Strategy Workshop (₽8M), Strategy & Implementation (₽15–30M). This reduced negotiation and increased predictability
- We hired junior consultants for the routine work and freed the seniors to focus on clients
Results over 12 months:
- Revenue: was ₽80M, became ₽85M (+6%). The loss of small projects was offset by growth in large ones
- Margin: rose from 40% to 55%
- Contract value: rose from ₽5M on average to ₽12M
- Consultant satisfaction: improved (they work on more interesting, larger projects)
Key takeaway: not all projects are equally valuable. Sometimes you have to give up revenue (small clients) in order to grow margin and concentrate on the genuinely profitable segment.
Universal levers for lifting margin
1. Pricing (the fastest route)
A 10% price increase at the same cost of production lifts profit by 50–100%.
- How: raise prices for new clients (existing ones may take offence). If you have a waiting list or demand exceeds supply, raise prices with confidence
- Risk: losing price-sensitive clients (usually 5–15%). But they are often the less profitable ones anyway
- Timeline: results within weeks
2. Optimizing cost of goods
Cutting COGS by 5–10% flows straight into margin.
- Methods: supplier negotiations, larger orders, switching technology, outsourcing routine work
- Timeline: from a month to a year
3. Product mix
Focus on high-margin products and services.
- Methods: ABC analysis by profit (not by revenue), cut loss-making categories, raise the visibility of high-margin lines
- Risk: a loss of revenue if you remove a popular product. But revenue often grows (because only the most profitable part remains)
4. Operational efficiency
Reducing overhead: salaries, rent, tools.
- Methods: automation, remote work (the office can be closed), finding cheaper tools, merging functions
- Timeline: from a month
How to choose which lever to start with
Every company has its own bottlenecks. Identify them in three steps:
- Look at the ABC analysis: what share of products or services runs at a loss? Start by optimizing or removing them
- Analyse COGS: where is the most money lost? In production, delivery, or support?
- Check pricing: are clients paying a fair price for your product or service? Can you raise it?
We usually recommend the following order:
- Months 1–2: remove loss-making products and services, raise prices for new clients — quick wins
- Months 3–6: optimize COGS, negotiate with suppliers
- Months 6–12: invest in technology if needed
Common mistakes
- Fear of losing clients: a 10% loss of revenue often delivers a 50% gain in profit, because it is the least profitable clients who leave
- Optimizing the wrong thing: focusing on cutting 2–3% of costs instead of reworking the product mix, which would yield 10–15%
- Investing without the maths: putting money into equipment without calculating payback. Payback periods should be one to two years at most
- Overdoing it: raising prices by 30%, losing 50% of clients — when 10–15% would have been optimal
Conclusion
Margin grows through a combination of approaches: the right pricing, a smart product mix, optimized cost of goods, and operational efficiency. Start with quick wins (pricing, product mix), then move on to the strategic ones (technology, processes). Above all, measure the results at every step.
Remember: margin matters more than revenue. A company with ₽50M in revenue and a 50% margin is more profitable than one with ₽200M in revenue and a 10% margin.