Providing services to clients is rewarding and you put in a lot of work to serve your clients, but are you making enough money to keep your business running and growing? That’s where profit margins come in. They help you see if your prices are actually covering your costs and leaving you with enough profit to thrive. Let’s break it down in simple terms.

What Is a Profit Margin?

Profit margin is a way to measure how much money you actually keep after covering your expenses. It tells you if you’re charging enough or if your prices need adjusting.

There are two main types of profit margins to look at:

1. Gross Profit Margin: This shows how much money is left after subtracting the direct costs of providing your services (like materials or subcontractors). The formula is:

(Total Sales - Direct Costs) ÷ Total Sales x 100

Many service-based businesses have little to no direct costs, so this number is usually high. On average, a healthy gross profit margin for a service-based business typically falls between 10% and 20%.

2. Net Profit Margin: This tells you how much profit you actually keep after ALL business expenses—like rent, software, marketing, and taxes—are taken out. The formula is:

(Total Profit ÷ Total Sales) x 100

This number gives you the full picture of whether your business is truly making money. For service-based businesses, a strong net profit margin generally falls between 15% and 40%.

Signs You Might Not Be Charging Enough

If you’re not sure whether your prices are right, ask yourself:

• Am I covering all my costs? Your pricing should include not just service costs but also your time, overhead, and future growth.

• Do I feel underpaid or overworked? If you're constantly working but struggling financially, it may be time to raise your rates.

• Are my expenses eating up most of my revenue? If your net profit margin is low, you might need to adjust either your prices or your expenses.

• Am I making what I need to sustain my business and lifestyle? Your business should support your financial goals, not just break even.

How Bookkeeping Helps You Track Profitability

Keeping up with your bookkeeping is the best way to know if your prices are working for you. Without organized financial records, it’s hard to see whether you’re making a profit or just breaking even. Bookkeeping helps by:

• Tracking income and expenses so you know exactly where your money is going.

• Giving you a clear profit & loss statement to see if your business is truly profitable.

• Helping you make informed decisions about pricing, cutting costs, and growing your business.

Ways to Improve Your Profit Margins

If you’re not making as much as you should be, here are some things you can do:

• Raise Your Prices Smartly: If you’re undercharging, consider increasing rates or packaging services to add value.

• Cut Unnecessary Expenses: Review your bookkeeping records to find areas where you can save.

• Work More Efficiently: Streamline your processes, automate tasks, or outsource low-value work.

• Offer Additional Services: Upsell or bundle services to increase revenue per client.

Final Thoughts

Profit margins are a key sign of financial health. The best way to make sure your pricing is right is to stay on top of your bookkeeping. If you’re unsure whether you’re charging enough, let’s chat about your bookkeeping! I can help you get clear on your numbers so your business can grow.

 Contact us today to learn how we can help your business thrive!