Posted August 19, 2025

Benchmarking Your Business: Are You Really Making Enough Profit?

As a business owner turning over between £500,000 and £1 million, you’re in good company. You’ve built something substantial, created jobs, and are contributing significantly to the UK economy. But here’s the question that keeps many owner-managers awake at night: Am I actually making enough profit for all this effort and risk?

If you’re not sure of the answer, you’re not alone. Many successful business owners are so focused on growth and day-to-day operations that they rarely step back to assess whether their profit margins are truly healthy.

What Does “Enough Profit” Actually Mean?

Before diving into benchmarks, let’s establish what we mean by profit. For most owner-managed businesses, we’re looking at:

• Gross Profit Margin: Turnover less cost of sales
• Net Profit Margin: What’s left after all expenses (but before your salary/dividends)
• Owner Return: Your total annual extraction including salary, dividends, pension contributions, and benefits

The key insight? Your business should generate enough profit to reward you fairly for your time, compensate you for the risk you’re taking, and provide funds for future growth and unexpected challenges.

Industry Benchmarks: Where Do You Stand?

While every business is unique, here are some general profit margin benchmarks for established UK businesses in your turnover range:

Service-Based Businesses (consultancy, marketing, professional services)

• Gross Profit Margin: 60-80%
• Net Profit Margin: 15-25%
• Owner extraction: £80k-150k+ annually

Trade Businesses (construction, electrical, plumbing)

• Gross Profit Margin: 40-60%
• Net Profit Margin: 8-15%
• Owner extraction: £60k-120k+ annually

Retail/Product Businesses

• Gross Profit Margin: 30-50%
• Net Profit Margin: 5-12%
• Owner extraction: £50k-100k+ annually

Manufacturing

• Gross Profit Margin: 25-40%
• Net Profit Margin: 8-15%
• Owner extraction: £60k-120k+ annually

These are broad ranges, and location, specialisation, and business model significantly impact what’s achievable.

The Hidden Costs of Being “Profitable”

Many businesses show a profit on paper but fail to account for the true cost of the owner’s involvement. Ask yourself:

• What would you pay someone else to do your job? If you’re the sales director, operations manager, and strategic leader, that might be £150k+ in salaries.
• What’s your time worth? If you’re working 60-hour weeks, your effective hourly rate might be surprisingly low.
• Are you building wealth? Profit that just pays your living expenses isn’t building long-term security.
• What about risk compensation? Employees get paid regardless of company performance. You don’t.

Red Flags: When Your Profit Might Not Be Enough

Consider these warning signs:

Cash Flow Stress: If you’re profitable but constantly worrying about cash flow, your margins might be too thin.

No Investment Capacity: Healthy businesses should fund equipment updates, staff development, and growth opportunities from profits.

Personal Financial Pressure: If the business profit barely covers your personal needs, you’re essentially working for wages with unlimited liability.

No Emergency Reserves: Businesses should maintain 3-6 months of operating expenses in reserve. If profits don’t allow this, margins are insufficient.

Declining Owner Drawings: If you’re taking less out this year than last year despite similar turnover, investigate immediately.

Improving Your Profit Position

If your margins are below benchmark, consider these strategies:

Price Review: Many UK businesses haven’t raised prices adequately to match inflation and increased costs. A 10% price increase on £750k turnover is £75k additional revenue.

Service Mix Analysis: Identify your most profitable services and focus sales efforts there. Often, 20% of your services generate 60% of your profit.

Cost Base Review: Scrutinise all expenses, especially your fixed costs.

Efficiency Improvements: Technology investments that seemed expensive might pay for themselves quickly through improved productivity.

Working Capital Management: Better debtor collection and supplier payment terms can dramatically improve cash flow without affecting profit margins.

The Growth Trap

Be wary of the “growth at any cost” mentality. Many businesses in your turnover range are growing revenue but seeing profit margins decline. This often happens when:

• New business is won at unsustainable margins
• Fixed costs increase faster than revenue
• Quality issues arise from rapid expansion, increasing costs
• Management attention becomes diluted

Sometimes, the most profitable strategy is optimising current operations rather than chasing the next £100k of turnover.

Getting Professional Perspective

Every successful business owner should conduct an annual profit health check. This involves:

• Benchmarking against industry standards
• Analysing profit trends over 3-5 years
• Reviewing the true cost of owner involvement
• Assessing cash conversion efficiency
• Planning optimal profit extraction strategies

The businesses we work with often discover they’re more profitable than they realised, but they’re not extracting value efficiently. Others find they’re busy but not truly profitable once all factors are considered.

Your Next Steps

Take an honest look at your numbers. Calculate your true profit margins and compare them to the benchmarks above. If you’re consistently below industry standards, it’s time to investigate why.

Remember, profit isn’t just a number on your accounts—it’s the return on your investment of time, energy, and risk. You deserve to be fairly compensated for building and running a successful business.

The question isn’t whether you’re making a profit, but whether you’re making enough profit to justify everything you’re putting into your business. Only you can answer that question, but the numbers should help inform your decision.

Need help benchmarking your business or improving your profit margins? Our team specialises in helping owner-managed businesses optimise their financial performance. Contact us for a confidential discussion about your business’s profit potential.