How to improve profit margins in a high-cost environment

When labour, materials, finance and operating costs continue to rise, protecting profitability becomes more difficult. The answer is not always broad cost-cutting — it often starts with better visibility, sharper pricing and more disciplined decision-making. 
 

Margin pressure is a business-wide issue 

For many businesses, rising costs are not a short-term disruption. They have become an ongoing feature of the operating environment. 

Even where revenue remains steady, profit margins can come under pressure if pricing, productivity and financial discipline do not keep pace. Over time, this can reduce cash flow, limit investment capacity and make growth harder to sustain. 
 

“Margin pressure is rarely caused by one issue alone. The key is to understand where costs, pricing and productivity are moving out of balance, so leaders can make targeted decisions rather than broad assumptions.” – Justin Martin, National Advisory Leader 

 

Why margins come under pressure 

Margin erosion is often caused by a mix of factors rather than a single issue. Common contributors include costs rising faster than revenue, delayed pricing reviews, inefficient operational processes, unprofitable customer or service mix, discounting becoming normal practice, and limited visibility over true cost-to-serve. 

Many businesses do not have a margin problem across the whole organisation. Instead, they have margin leakage in specific areas that has not been clearly identified. 
 

“Many businesses do not need to overhaul everything to improve profitability. Often, the opportunity sits in identifying where margin is leaking and taking practical steps to address it.” – Justin Martin, National Advisory Leader

 

Five practical ways to improve margins 

1. Review pricing with greater confidence.

Pricing is one of the most important margin levers available to a business, yet many organisations leave it unchanged for too long. 

Improving pricing does not always mean a blanket increase. It may involve adjusting prices for specific products or services, reducing unnecessary discounting, introducing minimum fees, reviewing contract structures, or shifting to a more value-based pricing model. 

Pricing decisions should be informed by cost, value and positioning — not just by what has historically been charged. 
 

“Pricing decisions should be deliberate and informed. When businesses understand their true cost base and the value they provide, they are better placed to protect margin with confidence.” – Justin Martin, National Advisory Leader

 

2. Understand which revenue is truly profitable.

A strong top line does not always translate into strong profitability. Some clients, projects or service lines may consume significant time and resource without generating an appropriate return. 

A more detailed analysis of profitability can help identify which activities deliver the strongest margin, where cost-to-serve is too high, where complexity is affecting return, and where leadership attention should be focused. 

3. Improve operational efficiency.

Efficiency improvements can strengthen margins without requiring major structural change. 

Useful areas to review include workflow bottlenecks, duplicated tasks, procurement practices, labour allocation, inventory or stock management, and technology use and reporting systems. 

In many cases, small operational changes can produce meaningful improvements over time. 
 

4. Strengthen reporting and forecasting.

If profitability is only visible after the fact, the business has less ability to respond in time. Better reporting can support faster, more informed decisions around pricing, cost management, resource allocation and investment. 

Good margin management requires more than historical financial statements. It requires insight into what is happening now and what is likely to happen next. 
 

“Good reporting gives business leaders the ability to act sooner. In a high-cost environment, timely insight can make the difference between protecting margin and reacting too late.” – Justin Martin, National Advisory Leader

 

5. Focus on profitable growth.

In a high-cost environment, growth needs to be selective. Revenue growth alone is not enough if it comes with weak margins or increasing operational strain. 
 

Margin improvement is not just about reducing spend 

The businesses that respond best to cost pressure are usually the ones that combine discipline with clarity. They understand where value is being created, where it is being lost, and where better decisions can improve both profitability and resilience. 

At BDO, our Advisory team helps businesses assess profitability, identify improvement opportunities, and develop practical strategies to manage cost pressure while supporting sustainable growth. 

In a high-cost market, protecting margin is not just a finance issue — it is a strategic business priority. 
 

Need help improving profitability and protecting your margins?

Talk to BDO’s Business Advisory team about improving profitability and building a more resilient business, or contact your local BDO adviser.