If your revenue is healthy but profits are elusive, the problem likely isn't a lack of effort in sales, but rather systemic issues in how your business operates. Here are the most common "profit leaks" we see:

 

1. Uncontrolled Cost of Goods Sold (COGS)

 

As you scale, your direct costs should ideally become more efficient. But often, the opposite happens. Without rigorous monitoring, COGS can creep up due to:

Supplier Price Hikes: Not negotiating new terms as order volumes increase.

Inefficient Production/Delivery: Wasting materials, poor process management, or increasing labor costs per unit.

Shrinkage/Loss: Higher rates of damaged goods, theft, or obsolete inventory.

 

2. Escalating Operating Expenses (OpEx)

 

This is often the silent killer of profitability. Growth can sometimes mask a lack of discipline in managing your overhead.

Bloated Headcount: Hiring too quickly or in non-essential roles before the revenue can comfortably support them.

Software Sprawl: Accumulating numerous SaaS subscriptions that aren't fully utilized or are redundant.

Marketing Overspend: Throwing more money at marketing without a clear understanding of ROI, leading to high customer acquisition costs (CAC). For example, a recent HubSpot study found that 55% of marketers struggle to prove the ROI of their marketing efforts, indicating potential overspend without clear returns.

Rent & Facilities: Expanding office space prematurely or holding onto expensive leases when remote work could be more cost-effective.

 

3. Poor Pricing Strategy

 

Many businesses underprice their offerings, especially services, out of fear of losing customers to competitors. This leaves little room for profit.

Cost-Plus vs. Value-Based: Pricing based solely on covering costs rather than the perceived value you deliver to the customer.

Lack of Tiered Pricing: Not offering different price points that capture value from various customer segments.

Discounting Too Heavily: Constantly resorting to discounts to close deals, eroding your margins.

 

4. Inefficient Workflow & Lack of Automation

 

Manual, repetitive tasks can be a significant drain on resources. Every hour spent on administrative work that could be automated is an hour not spent on revenue-generating or strategic activities.

Manual Data Entry: Prone to errors and consumes valuable employee time.

Fragmented Systems: Using disparate software that doesn't "talk" to each other, leading to duplication of effort.

Lack of SOPs (Standard Operating Procedures): Inconsistent processes lead to wasted time, re-work, and quality issues. According to a report by Zapier, businesses could save an average of $28,500 per year by automating just five key business processes, highlighting the significant financial impact of inefficiency.

 

5. Weak Cash Flow Management

 

Revenue is vanity, profit is sanity, but cash is king. You can be profitable on paper but still run out of cash if your cash flow is poorly managed.

Extended Payment Terms: Offering long payment terms to clients without managing your own payables effectively.

Excessive Inventory: Tying up too much capital in unsold stock.

Poor Collections: Not actively following up on overdue invoices.