The margin is usually already there: where to look first

Here is an unfashionable view: most businesses under margin pressure don't have a growth problem. They have a retention problem, and the thing they're failing to retain is the margin they've already won.

When profit disappoints, the instinct is to look outward: a new segment, a new channel, a new product. Those are exciting conversations. The less exciting conversation, about what happens to a price between the rate card and the bank account, is usually where the quickest money sits.

The gap nobody owns

A discount approved for a reason, inside policy, that won a deal the business wanted is pricing doing its job. A leak is something else. It is money the business meant to earn, or reasonably could have earned, that it gave away by default. No single decision looks wrong. Nobody signs off a leak. It accumulates.

McKinsey's The power of pricing calls the journey from list price to what the business actually pockets the "pocket price waterfall". Marn and Rosiello made the underlying case years earlier in Harvard Business Review's Managing Price, Gaining Profit: the wrong price shrinks profit as fast as the right one grows it. Most leadership teams can see the top of that waterfall clearly and the bottom roughly. What happens in between is often nobody's job.

Illustrative example

Illustrative example. A distribution business has a strong year: revenue up, customer count up, a price increase announced in the spring. Yet gross margin finishes slightly down, and the board pack explains it as "mix and cost pressure".

Look closer and a different story emerges. The spring increase reached the rate card but not a large share of long-standing accounts, whose terms rolled over untouched. A rebate scheme agreed to win one large customer quietly spread to several others. Sales managers approved deeper discounts in the final fortnight of each quarter because the orders were there. A supplier cost rise was absorbed rather than passed on, even though contracts allowed it. None of it was hidden. None of it was anyone's fault. And none of it appeared as a line in the P&L.

What you'd notice

Leakage rarely announces itself, but it leaves traces:

• Revenue grows faster than gross profit, and the explanation keeps changing.
• A price increase is "done" according to the pricing team, yet realised price barely moved.
• Similar customers pay noticeably different prices, and nobody can say why.
• Rebates, free periods or waived fees are growing, and finance can't tie them to specific customers.
• Discount approvals happen by email, or after the invoice has gone out.
• Cost increases are discussed in operations reviews but never in pricing ones.
• The board sees average discount, never the spread underneath it.

If three or four of these sound familiar, margin is almost certainly leaking. In regulated sectors, how it is put right matters as much as whether it is: UK financial services firms, for example, must deliver fair value under the FCA's Consumer Duty.

Why it matters

Recovered margin is unusually high-quality profit. It doesn't depend on market growth, new customers or out-spending a competitor. It works on revenue the business already earns, through decisions it already controls, and price realised on retained volume falls almost entirely to the bottom line. That is why it so often sits near the top of a serious value-creation plan, and why investors pay attention when it is done credibly.

There is a cultural payoff too. Businesses that can see their own leakage tend to make better pricing decisions everywhere else, because the conversation shifts from anecdote to evidence.

Getting this right across a whole business is worth a great deal: our team's work on a global pricing strategy delivered around £15M EBITDA a year. These figures come from roles our team held directly, not from client engagements.

Takeaway

New volume is worth chasing, but not before you know how much of today's margin is slipping away. In most businesses the gap between the price on the rate card and the margin that lands is wider than anyone believes, and it is made of decisions that can be seen, owned and changed. The new volume can wait a quarter.

Figures come from roles our team held directly, not from client engagements. Examples marked illustrative are hypothetical; third-party figures are from the sources linked.