TLDR
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Margins can slip across your business, from suppliers to operations, financial structure to pricing. Leverage profitability levers to help identify and address these areas
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A review of the last six months of sales and costs may show you where to start fixing margin erosion
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Better supplier terms and ordering strategies can help make a big difference quickly
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Pairing price increases with customer communication may maintain loyalty and long-term relationships
Keeping steady margins has been a moving target for many small and medium-sized businesses. From rising input costs and tariffs to shifting customer expectations and interest rates, pressure is coming from all sides. But there are ways to respond — practical steps may protect what you earn. Whether it’s adjusting pricing, rethinking supplier relationships or streamlining internal operations, there are levers you can use across your supply chain — and the small adjustments you make can help protect your profitability, even if your costs keep climbing.
So, what’s the first step? It starts with diagnosing where your profits are dropping, then looking at the four main levers you can pull: suppliers, operations, customers and financial structure. The table below serves as a quick reference, and the sections below translate each lever into clear actions.
Why margins move and what you can control
Margins exist in every part of your business — from your suppliers to your operations and financial structure, to your pricing. And while economic conditions can affect all four, it’s important to remember that while you can’t control the economy, you can control how you respond to the risks, disruptions, challenges and customer sentiment that may be reducing your profitability.
In each part of your business, there may be opportunities to hold steady or reinvest for future growth. The key is to determine which lever to pull first, understand where quick wins may be, and identify changes that can make a positive impact over time.
What’s eating your margins? 4 steps to a clean read
To know where your margins are, you need an accurate view of where your money is going. Here’s how to get started:
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Pull your sales and costs for the last 6 months. What has changed? Chart unit costs, freight and labour month-over-month. Look closely for hidden costs, such as new supplier surcharges or creeping overtime costs that are bumping up your labour expenses.
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Identify which products, customers or jobs make you money. Instead of looking at revenue, look at what’s left after you pay to make or deliver your product. A bestseller isn’t always a money-maker.
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Don’t guess. Quick back-of-the-envelope math can show you where you may be taking a hit. For example, if a product’s material cost rose by 5% and you haven’t adjusted your price, you’ve effectively given margin away.
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Model simple scenarios. Create different scenarios to understand how each lever affects your cash flow and margins. A small change like a 2% supplier discount or a modest price adjustment may have an outsized impact when applied consistently.
Tip: Convert the possible changes into annualized dollars. “Two points of margin” is abstract, but if you convert it to actual dollars — i.e., $75,000 per year — that paints a clearer picture.
The profitability levers, at a glance
The table below can serve as a helpful decision map. Start with the areas where your margins are lowest.
| Lever Point | What You Can Adjust | Pros | Watchouts |
|---|---|---|---|
| Suppliers | – Get new quotes for top products – Negotiate better payment terms – Leverage collective buying power – Diversify sourcing | – Reduces cost of goods sold (COGS) quickly – Improves cash flow – Stabilizes supply | – Possible quality/delivery trade‑offs with new supplier – Test new supplier with small orders first |
| Your operations | – Identify and address key constraints – Streamline processes and automate admin – Revisit pricing models – Review overhead | – Increase efficiency/productivity – Reduce errors and rework – Improve profitability | – Data accuracy to identify changes – Requires upfront time and potential investment in technology – Start with small, incremental changes – Measure results and adjust as needed |
| Customers | – Adjust pricing – Bundle offerings – Create loyalty incentives | – Improve revenue and customer retention – Builds topline and resilience | – Communicate pricing transparently to maintain product value – Monitor customer feedback |
| Financial structure | – Refinance debt – Optimize cash conversion – Use short‑term credit tactically | – Improve cash flow – Reduce interest | – May be short‑term relief if not paired with operational changes |
A deeper dive: Acting on your levers
Small, reliable changes may accomplish more than a single sweeping change. Start with a quick win for the fastest benefit. Then, as that fix takes hold, move on to deeper plays.
1. Suppliers: Turn negotiations into cost relief
Your costs affect everything else. Getting more favourable vendor pricing and terms is often the quickest way to improve your bottom line.
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Requote your top products with alternate suppliers. Even if you don’t switch suppliers, requesting new quotes can restart pricing conversations. This move may also help you diversify your supplier list, which can boost resilience during disruptive times.
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Swap flexibility for a better price. Consider giving the vendor something to make their work easier, such as more notice, bigger but fewer orders or flexible delivery windows, in exchange for a lower unit price or free freight.
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Negotiate when you pay. Better payment terms may improve cash flow, even if the price doesn’t come down.
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Ask for more time to pay without damaging relationships. Ask suppliers if they will move standard terms from 30 days to 45 days. If that’s not possible, propose milestone payments tied to delivery stages (i.e., 40% at order, 40% at shipment, 20% on receipt). Longer terms ease cash flow, but trust counts for a lot – share realistic forecasts, place orders regularly and pay exactly on time to maintain goodwill.
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Buying in volume may provide savings. Bigger, grouped orders may qualify for lower pricing tiers. You may also be able to collaborate with other businesses on orders for better discounts.
What to watch for: When switching vendors, test with a small order before going all-in to catch quality or lead-time hiccups.
Important read: Thinking About Securing a New Supplier for your Business? 5 Questions to Ask Yourself – and your Potential Supplier – My Money Matters
2. Your operations: Free up the margin you already earn
Operational tweaks don’t have to be complex. Small moves, done consistently, may lead to significant improvements in efficiency and productivity, and ultimately, in your bottom line.
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Look at the long-term. Operations improvements may require some upfront work, but the long-term payoff can be meaningful. Start with simple changes you can implement easily (such as reviewing your overhead or creating checklists for repeat tasks), and make ongoing, incremental changes over time.
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Fix the biggest bottleneck first. One slow step can hold back everything else. Identify where work piles up, then make the necessary adjustments. Removing one constraint can help improve productivity across the board.
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Introduce pricing that reflects effort/index. Pricing that adjusts in small, predictable ways can protect margin without constant strategy changes. Consider a materials surcharge tied to pricing that requires rush and custom effort.
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Streamline your operations for maximum efficiency. Cut hidden delays that may slow your team down. Take a look at our tips to streamline your operations.
Tips to streamline operations:
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Write how-to guides for repeat tasks: Short, step-by-step instructions make work consistent and reduce mistakes.
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Reduce small time-wasters. A few feet of extra walking or searching adds up over a week. Keep tools and labels where the work happens and store parts in the order they’re used.
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Batch small tasks. Interruptions kill workflow. Group small, similar tasks (i.e., labelling, packing slips, status updates) and do them at set times.
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Automate admin where possible. Consider software that triggers reorders automatically and flags low-margin orders before they ship. Automation reduces manual entry, catches issues sooner and frees people for work that adds value.
What to watch for: Changing too much all at once may stall progress. Pick one or two changes to start with, measure the results, and keep what works.
3. Customers: Price with confidence and keep their trust
Many business owners are reluctant to raise prices, concerned about alienating current customers. But remember this: You have earned the right to charge for the consistent value you provide. The key is to be transparent about your pricing, offer options, and tie any increases to a story that resonates.
Tactics to consider:
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Right-size the increase: Use your six-month data to quantify cost changes, then set a modest but frequent cadence of boosts, instead of big annual jumps.
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Create bundles to highlight value. Create “good,” “better,” and “best” packages and anchor pricing with the premium option. Many buyers choose the middle.
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Introduce loyalty incentives. You can preserve prices while rewarding behaviours that lower your costs of doing business, such as automatic payments, consolidated shipments or self-service options.
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Be upfront about your pricing. If your pricing or fee structures have changed, refresh your materials to make them easy to understand. Your customers may appreciate it if you tell them why you are increasing your prices — transparency helps build trust, reduces confusion and makes it easier to convey value.
You may even find your challenges have more to do with timely receivables than with pricing.Encourage earlier payment by offering a small discount for paying quickly. It may also be worth streamlining invoices so they’re easier to approve — include the correct PO, itemized lines, delivery dates and a clear due date. Faster, error-free billing often shortens the wait for cash, reduces collection work and may bypass the need to raise prices at all.
What to watch for: Keep your eye out for silent churn. Monitor your win/loss rate and order frequency after a price change. Proactively check in with top accounts when you make a price change, just to keep the relationship humming.
5-minute read: Thinking of Increasing Prices to Boost Your Business’ Bottom Line? Ask Yourself 3 Questions – My Money Matters
4. Financial structure: Create breathing room, not a crutch
Cash flow can buy you time to fix root causes of margin erosion. This means managing how fast money comes in and how fast it goes out – and using debt carefully while the other adjustments take hold.
One key strategy is to match the loan to what it’s paying for. Use term loans for longer-life items like equipment or vehicles so the repayment schedule lines up with how long the asset will be used. Reserve your line of credit for short, temporary needs, such as covering inventory, seasonal swings or timing gaps between paying suppliers and collecting from customers.
What to watch for: Avoid using credit to cover long-term purchases or ongoing losses. Set limits and a repayment plan so debt doesn’t become a crutch.
The bottom line
Margins are the heartbeat of your business. While you can’t control the economy, you can control how you respond. Start with knowing where you stand, pull the fastest levers first and layer in durable changes that can make every order a little more profitable. Use the table here as your checklist and revisit it quarterly to keep your margins steady — and your growth intentional.
