Clear analysis and decisive action turned an unprofitable contract into a platform for long-term success.
Many businesses dream of landing a major client: a name with brand recognition, prestige and impressive turnover potential. But as one UK manufacturer discovered, a contract that looks good on paper can hide unprofitable shadows.
This is the story of how a closer look at the numbers, alongside a few honest conversations, helped turn a hefty loss into a solid, sustainable win for this family owned business.
The Challenge: Turnover Up, Profits Down
Our client, a well-established UK manufacturing firm, was thriving on paper. Sales were strong, turnover was increasing and the sales team were pleased with their performance.
But profits were falling. Margins were tight, and the bottom line was under pressure.
They realised they needed help. They approached UKBA for support and I was asked to take a closer look.
The Discovery: Not All Sales Are Equal
A review of the sales mix quickly highlighted one standout contract: a long-term relationship with a prestigious international manufacturer. Revenue from this customer had increased rapidly in both size and complexity.
However, the numbers didn’t add up. While their average client gross margins were around 25%, this contract was showing just 10% gross margin.
After a full cost analysis, the real figure was closer to 6%.
Some key costs, including labour, materials handling and overheads, hadn’t been fully captured. What appeared to be a successful account was, in reality, draining time and resources for limited return.
The Turning Point: Facing the Facts
The client was surprised: how could such a valuable contract be causing problems and dragging down overall profitability?
With the full financial picture in place, the options were clear:
- Renegotiate the contract to bring margins in line
- Walk away, potentially impacting revenue and headcount.
Walking away was always a drastic solution, so before this, we explored a constructive renegotiation, requiring some honest conversations around mutual value.
The Solution: A New Deal, Built on Transparency
With open dialogue and a focus on sustainability, the contract was successfully restructured:
- Gross margin increased from 6% to 20%
- Deliverables and terms were adjusted to reflect actual effort and resources used.
This returned the contract to profitability and gave the client confidence to take a fresh look at other parts of the business to see where changes could be beneficial.
The Ripple Effect: Reviewing the Portfolio
Armed with new insights, the client reviewed other accounts. Two smaller contracts were also underperforming against benchmark margins. Both were successfully renegotiated.
The results were clear:
- Profitability was restored
- Cash flow was improved
- Staff bonuses were reinstated
- Leadership began to breath more easily.
Better still, the relationship with their main client grew stronger. Subsidiaries across the group began engaging the business, impressed by the clarity and commitment to building a win–win partnership.
The Lesson: Profitability First
This case offers practical lessons for any SME leader:
- Turnover is vanity, profit is sanity
- Review legacy contracts regularly
- Know your true costs and don’t make assumptions
- Transparency builds better client relationships
- Renegotiation is a strength, not a weakness.
Final Thoughts
A big name and rising turnover can be exciting, but only if the financials stack up. In this case, clear analysis and decisive action turned an unprofitable contract into a platform for long-term success.
And now? Confidence is back, the team is thriving, and the directors are sleeping better at night.
We’ll help you understand what’s getting in the way of your business profitability. For a confidential conversation with an accredited member of UK Business Advisors, get in touch. You can message us, call us on 0333 444 8522 or visit ukba.co.uk/contact.