Posted July 23, 2026

How Much Profit Should a £1 Million Turnover Business Make?

It’s one of the most common questions we hear from business owners:

“We’re turning over around £1 million. Are our profits where they should be?”

The honest answer is that there isn’t a single correct figure. Two businesses with the same turnover can generate very different levels of profit depending on their industry, pricing, efficiency, staffing structure and overheads. There are several metrics that can help you assess whether your business is performing well and where improvements might be made which we have outlined below.

Turnover Doesn’t Pay the Bills

Business owners often focus on turnover because it is easy to measure and generally feels like a marker of success. Unfortunately, growth in turnover doesn’t always translate into growth in profit. We’ve seen businesses increase turnover by 20% only to find profits remain unchanged or even reduce, because staffing costs, overheads and inefficiencies have increased just as quickly. The businesses that perform best tend to focus on profitability and productivity rather than revenue alone.

What Is a Healthy Profit Margin?

For many owner-managed businesses with annual turnover between £500,000 and £2 million, an adjusted EBITDA of somewhere between 15% and 25% is often a reasonable target. A businesses adjusted EBITDA is a measure of profitability, it looks at the profit that a business makes before interest, tax and depreciation, but it also adjusts for exceptional items, this might include a market salary for a director who draws a small salary topped up by dividends.

If your profits are consistently below 10%, it may be worth looking more closely at the factors affecting profitability.

Gross Profit Matters More Than Many Owners Realise

Gross profit is the amount left after the direct costs of delivering your product or service have been deducted.

A falling gross margin is often the earliest warning sign that profits are under pressure.

Common causes include:

• Rising supplier costs
• Under pricing
• Providing large discounts
• Poor control over job costs
• Time being spent on work that cannot be billed

Many business owners focus on reducing overheads when the biggest opportunity may lie in improving gross margins. Even a small increase in the business’ gross profit percentage can have a significant impact on the bottom line.

Revenue Per Employee: One of the Most Useful Measures

As businesses grow, headcount often increases faster than productivity.

One of the simplest ways to measure efficiency is to divide turnover by the number of employees.

For example:

£1 million turnover with 5 employees = £200,000 per employee

£1 million turnover with 10 employees = £100,000 per employee

The figure itself is less important than the trend, if your turnover is increasing but revenue per employee is falling year after year, it may indicate that staffing levels have grown faster than productivity.

Monitoring this metric regularly can provide an early indication that profitability is coming under pressure.

Keep a Close Eye on Staffing Costs

For the majority of businesses, staffing is the largest expense and in recent times staff costs have risen substantially.

While there is no universal benchmark, a business owner should understand:

• Total staff costs as a percentage of turnover
• Revenue generated per employee
• Gross profit generated per employee
• Whether recruitment is delivering a measurable return

Many growing businesses recruit ahead of demand, while this can support future growth, it can also erode profitability if revenue does not increase as expected. The best businesses regularly review team structure and ensure that growth in staffing is matched by growth in productivity.

The Most Common Profit Leaks

In our experience, profit problems rarely result from one major issue, instead, they tend to come from a series of small inefficiencies that accumulate over time.

Some of the most common examples include:

Pricing that hasn’t kept pace with costs, many businesses fail to increase their prices regularly, resulting in margins gradually reducing.

Unproductive staff time, whether it’s poor scheduling, duplicated work or excessive administration, wasted hours quickly become expensive.

Weak credit control, a profitable business can still suffer if customers take too long to pay.

Over-servicing customers, providing significantly more work than originally quoted without charging accordingly can quietly erode margins.

Lack of management information, problems often develop slowly and remain unnoticed until year-end accounts are produced.

Focus on the Right Numbers

While every business is different, the strongest-performing companies tend to monitor a small group of key figures every month:

• Gross profit margin.
• Net profit margin.
• Revenue per employee.
• Staff costs as a percentage of turnover.
• Cash balance.
• Debtor days.

These measures often tell you much more about the health of a business than turnover alone.

How Do Your Numbers Compare?

Most business owners know their turnover. Far fewer know how their margins and productivity compare with similar businesses.

At Whitesides Chartered Accountants, we help business owners understand the numbers that drive performance, identify profit leaks and benchmark their results against what we see across a wide range of growing businesses.

If your business is turning over between £500,000 and £2 million, we’d be happy to discuss your figures and help you understand where opportunities for improved profitability may exist.

Sometimes a few small changes can make a far bigger difference than simply working harder to increase turnover.