What’s a good profit margin for a UK SME, and are you charging enough?
Turnover is up. You are busier than you have ever been, the team is flat out, the order book looks healthy. And yet at the end of the month there is still almost nothing left. If that is your business, I am going to say the thing your figures are probably too polite to tell you: you may be underpricing, and growth is hiding it.
Let me be straight, because this is one of those topics where being vaguely encouraging does no one any favours. Most of the owner-managed businesses I see are not charging enough. Not by a little. And because revenue keeps climbing, the problem stays invisible until something forces the issue. So let us look at what a good margin actually is, why growth disguises a pricing problem, and how to sense-check whether you are leaving money on the table.
What is a “good” margin, honestly?
The honest answer is: it depends on your sector, and anyone who gives you a single magic number is selling something. But you do not need a magic number. You need a realistic range for a business like yours, and the discipline to know where you sit in it.
As a rough, heavily caveated guide for UK SMEs:
The broad middle. Net margins in the region of 7 to 10 percent are common across a lot of ordinary SMEs. Respectable, not spectacular.
Services. Professional and specialist services often run higher, frequently 15 to 25 percent, because they sell expertise rather than a heavily costed product.
High-volume, low-margin. Retail, hospitality and food often run much thinner, sometimes only 3 to 7 percent, where volume and tight cost control are the game.
Treat those as directional, not gospel. The number that matters is not the national average, it is the benchmark for your specific sector and size, and whether you are above or below it. A margin below your sector benchmark is not automatically a disaster, but it is always a question worth asking, not a number to shrug at.
And here is the point most benchmark articles skip: in the current cost environment, with wages, energy and everything else up, performing at the sector median means you are holding ground, not getting ahead. If you want the business to fund growth, pay you properly, and weather a bad quarter, you probably need to be aiming for the upper half of your range, not the middle.
Why revenue growth hides a pricing problem
Here is the trap, and it catches good businesses. When revenue is growing, almost everything feels fine. More sales, more activity, more coming in. The bank balance moves in the right direction often enough that no one stops to ask the awkward question. Growth is a wonderful anaesthetic.
But revenue is not profit, and busyness is not margin. You can grow turnover for years while your actual profitability erodes, because every new sale at a thin margin adds work, cost and risk without adding much to the bottom line. You end up running a bigger, busier, more stressful business that makes roughly the same money, or less. I have seen owners double their turnover and end up taking home less than before, because they scaled a pricing mistake instead of fixing it.
This is why “we are growing” is not, on its own, good news. Growing what? If it is revenue and headcount but not margin, you may simply be getting more efficient at running unprofitably.
A simple way to sense-check your pricing
You do not need a pricing consultant to get a first read on this. You need to be honest with a few questions:
When did you last put your prices up? If the answer is “a couple of years ago” or “I can’t remember”, inflation alone has cut your real prices while you were not looking.
Do you win almost every quote? A very high win rate usually means you are cheap, not irresistible. If nobody ever flinches at your price, your price is too low.
Do you know your gross margin on each product or service, not just overall? If some lines are barely breaking even, you may be subsidising them with your good work, and doing more of it will hurt, not help.
Have you ever lost a customer purely on price, and did it actually matter? Often the customers who leave over a sensible increase are the ones costing you the most to serve.
Could you raise prices by 5 or 10 percent tomorrow? If the honest answer is “probably, and most people would not blink”, that gap is pure profit you are choosing not to take.
If several of those made you wince, that is the signal. A price rise goes almost entirely to the bottom line, which is why pricing is the single highest-leverage lever most SMEs have, and the one they touch the least.
The FD’s honest take
So here is my actual view, not a hedged one. The instinct to compete on price is usually fear dressed up as strategy, fear that customers only care about cost, that a rise will lose them, that you are not worth more. In most businesses that fear is wildly overblown, and it is costing the owner a proper living.
Underpricing does not just shrink your profit. It underfunds everything: the wages you can pay, the people you can hire, the investment you can make, the resilience you carry into a downturn, and what you eventually walk away with. A well-priced business is a calmer, safer, more valuable one. Getting pricing right is not greedy. It is what lets you build something that lasts and look after the people in it, including yourself.
None of this means reckless increases. It means knowing your real margins, pricing with confidence rather than apology, and treating pricing as a deliberate decision rather than something you set once and never revisit.
Where a Fractional FD fits
Working out your true margins by product and service, spotting the lines that lose money, and building the confidence to price properly is exactly the kind of clarity a Part-time FD brings, without the cost of a full-time hire. Someone senior who can show you where the money really is, and is not afraid to tell you the uncomfortable truth that you are charging too little.
You can see how the ongoing support works on our Fractional FD service page.
We work with owner-founders and MDs across Yorkshire and the North East who are working harder than ever and want the profit to finally reflect it. If turnover is up but nothing is left at the end of the month, pricing is the first place to look.