Three Silent Profit Leaks That Could Be Costing Your Business Six Figures
Many business owners assume that higher revenue automatically leads to higher profit. But for companies generating between $1 million and $5 million in revenue, the opposite can often be true. In a recent episode of the Pivot to Profit podcast, Pam Jordan explains why growing businesses frequently struggle with cash flow and profitability—even when sales are increasing.
According to Jordan, profit problems in scaling businesses are rarely caused by a lack of revenue. Instead, they usually come from “profit leaks”—small inefficiencies that quietly drain cash from the business over time. Left unchecked, these leaks can cost companies six figures each year.
Here are three of the most common profit leaks business owners face as they scale.
1. Underpricing Services
One of the biggest profitability issues in service-based businesses is underpricing. This often happens when companies create custom proposals, allow scope creep, or underestimate the time required to deliver services.
Many founders don’t calculate the true cost of delivering their services. Labor, management oversight, software tools, and overhead all impact the real cost of fulfillment. If those expenses aren’t built into pricing, the business may appear profitable while margins are actually shrinking.
Jordan recommends recalculating the cost to deliver each offer and ensuring gross margins remain around 50–60% for service-based businesses. Raising prices for new clients first and limiting customization can help protect profitability without disrupting existing relationships.
2. Inefficient Service Delivery
As businesses grow, complexity increases. Teams get larger, communication expands, and processes that worked at lower revenue levels may no longer be effective.
One overlooked issue is team utilization. Employees may be working, but not at full productive capacity. When utilization drops to 60–70%, companies end up paying full salaries while losing profitability on projects.
Jordan suggests tracking team time for 30 days to evaluate how resources are being used. By tightening processes, updating standard operating procedures (SOPs), and setting clearer expectations, businesses can improve efficiency and protect their margins.
3. Overhead Bloat
The third major profit leak comes from growing overhead costs. Extra software subscriptions, premature management hires, expensive consultants, or investments without measurable ROI can all inflate expenses.
Jordan emphasizes that every expense should serve a purpose. Business owners should regularly review their profit and loss statement, payroll costs, and recurring expenses. Conducting a quarterly expense audit can reveal unused tools, unnecessary spending, or misaligned investments.
Even small changes—like eliminating unused subscriptions—can create significant savings over time.
Protecting Profit as You Scale
Ultimately, profitability isn’t something that magically appears at the end of the year. It’s something business owners must intentionally monitor and protect each month.
By correcting pricing, improving operational efficiency, and auditing overhead costs, companies can reclaim lost margins and turn revenue growth into real financial progress.
As Jordan reminds listeners, the most important metric in business isn’t what you make—it’s what you keep.
EPISODE TRANSCRIPT
Welcome to today's episode of Pivot to Profit. Look, if you're a business owner generating over a million dollars in revenue, but you still feel nervous to look at your bank account, this episode is for you. Maybe your revenue's up, your team is growing, clients are coming in, but cash is still tight. And unfortunately, your pay has not gone up. And tax season, it's just stressful. Look, as you grow from one to five million in revenue, Profit problems are rarely revenue problems. They're leak problems. So today I'm going to walk you through a three step process, three profit leaks that are quietly costing your business six figures a year. And I'm going to share how to fix it. So if you're ready to learn how to increase your profitability about the three silent leaks, let's dive in. Profit doesn't disappear dramatically.
It actually leaks slowly. And this happens because as we grow, our companies become more complex. We add layers of team members. We don't just have fulfillment and leadership. Now we have this middle management and we have department heads and we have operations directors and managers and all of these layers that are costing us more money. And often our offers keep changing and growing. And we're just trying to justify everything because we're growing and scaling. So let's start with number one. The first profit leak that is probably going on in your business is under pricing your services. This can really come in if you have clients that want custom proposals, one-offs, project work, where you're used to doing X, Y, Z, and a client comes in and they have money and they want your help, but all of a sudden they want you to do A, B, This is a great great way to lose profitability. Scope creep is also huge at this point because you've become a trusted source for that client. They know your team. They know you'll bring value. And so all of a sudden they're like, can you add this? Can you do this? Can you do this? And a lot of times as service providers, we want to bring value to our clients. So we say, yes, instead of changing our pricing model and in charging the clients for the service that we're providing.
And often as founders, we're underestimating delivery time and it's costing us profitability. Most service businesses in the one to five million are not undercharging because they lack confidence. Rather, they're undercharging because they're not calculating their cost to deliver. They're not saying, how much is it actually costing me? Because a lot of entrepreneurs don't like to look at numbers and don't like to do the math but it is so imperative for you to calculate your direct cost to deliver on your services. What is the labor cost? Include your time because just because you're the owner doesn't mean you don't have a cost. You cost the company something too and hopefully you're the highest paid employee and the worth the most in your business. So your time working on a project is actually costing more than the rest of your team.
And don't forget that as you're going and you have that middle level of management, you need to apply part of their payroll to the projects that you're providing for as well. And all those sneaky softwares that you have or tools or platforms that you're using, all the AIs that you've added, all of that needs to be covered. And then there's this thing called overhead that unfortunately a lot of business owners just think, no, I'm just going to pay that anyway. I don't need to include it, but you do need to understand the direct costs.
That it takes you to fulfill, but also the cost that it takes to keep the lights on in your business. Those need to be calculated in your prices. So when you're looking at profit leaks, make sure you're charging the right amount. Most of our clients that we're working with at the CFO level, it is now a new year and we are encouraging our clients to recalculate all these numbers and helping them do the analysis to up their prices. Because if gross margin isn't at least 50 to 60 % in a service-based business, scaling is just gonna hurt because as the owner, it comes out of your pocket, not your team's pockets. You need to make sure that you're calculating your cost per client and increasing prices on new contracts first. And I'm not saying, ⁓ do this calculation and automatically freak out and do a big price increase for existing clients. Start with new prospects.
So if your product is $1,000 a month, your service is $1,000 a month, do a 20 % increase for everyone that walks in the door. And then do a slow rollout to existing clients. And remove customization wherever possible. Be really clear on what your offer is and be able to do it repeatable and not have too much variance because there's so much scope creep that can happen and so much profit loss when all of a sudden you do X, Y, Z really well, but this client over here wants ABC. Your team's not gonna know how to fulfill on ABC within the parameters and you're gonna have scope creep and your profitability is gonna decrease significantly. This is also a good way to increase tiered offerings so that you can have a small, medium and large offer for your clients and make sure that each tier it's really... clear and transparent to the client and to your team what fulfillment looks like so you don't have team members spending more time than they need to on your bottom tier clients. If you don't know your gross margin by offer, you're just guessing. And guessing is expensive and it's costing you, the owner, the founder, the CEO, profitability. So that's leak number one. Leak number two is where even well-priced businesses can be losing money. And this is the delivery, the scope, the team efficiency. Congratulations, you've hit a million dollars. But what it takes to get from a million to three and three to 10 is very different. And this is where very often as service providers, we just want the quick response for the clients. So we just stop what we're doing and we just answer the email, make a quick phone call, send the text, whatever.
then our communication can get out of control. Slack messages, emails, it's taking up more time than you realize. And this is where boundaries go out the window and you're just trying to deliver so much to your clients. And your teams is often spending more time, 10 to 20 % of their time in places that they don't need to and it's costing you profitability. And this is a great time to stop and rework your SOPs.
Because the SOPs that you had to fulfill on your products and services at half a million might not be the same SOPs that you need at a million and three million and 10 million. So it's time to up level your SOPs or your standard operating procedures. So your team knows what's required of them at this level of business. At this stage, most businesses don't have a revenue problem. They have a capacity math problem. And this is where team utilization comes in really big because as you're growing and scaling, you're getting more team members, you're getting more clients and some reason there's a disconnect. So this is a really good time to look at your team utilization because as you're scaling utilization ironically drops because your team is not being as effective and efficient as you want them to be. And what that means for you as the owner is profit is just leaking out of your business because a few extra hours per client across 20 clients ⁓ is a massive profit margin erosion. And that means it's costing you more than you actually think to fulfill on your services to clients. And your team's not even operating at 80 to 100 % of capacity in utilization. They're operating in the 60 to 80 and it's costing you money. We did this exercise with a client in the marketing space and he did a team utilization study and he had a six figure team member come to him and say, ⁓
Yeah, I'm working at about a 57 % capacity, but he was getting 100 % of his paycheck. So we quickly revamped our expectations for that team member so that we could get him to an 85 % utilization so that every dollar that we were spending, we were making sure that we were maximizing. And what happened was he was able to do more projects faster, which increased the company's profitability, and the employee was still getting his six-figure check.
So watch team utilization, it is huge. So what do you do? How do you figure this out? This is a practical way. Look at your team's time. Track their time for a 30 day period. It doesn't need to be extensive, but a 30 day. Identify your top 10, maybe five clients and literally track how much time each of your team member is spending with them. And this is going to put a huge neon light that says we have an imbalance because we have these clients that are taking up an unbalanced amount of your team's time. And this is when you can tighten that and reframe your expectation of your team members because you are, as you scale, your profit is leaking because your team is not focused. They don't have clear parameters, clear accountability. And this is a really good opportunity for you to realize the imbalance and correct it. Pay people based on the metrics and the numbers that tip the scale for you and your business. If they don't do these four things, they don't get paid their full amount. If you want to incentivize them, they need to do these two extra things that are gonna increase their utilization, increase client delivery and happiness. Absolutely reinforce that. Because unmanaged generosity is not leadership, it's margin erosion.
This is you being too nice to your team because you're growing and not keeping them accountable and in line with what you expect from them. So this is a huge, huge profit leak. When we look at our service-based businesses, we create dashboards for them as fractional CFO clients. And do know what is always in the one or two spot for costs? Payroll, contractors.
Your team is typically your first or your second largest expense every month. And this is a huge area where you can make some small changes and see huge profitable improvements. So the third leak is the one that feels the most justified. And this is where overhead bloat comes in. And oftentimes it's disguised as investment. I hear a lot of... founder saying, well, I'm just reinvesting everything back into my business. OK, but what does that mean? And what is that doing to your profitability? Oftentimes, it's one extra software. Oftentimes, it's software with more users than we need. And it's keeping things on in our tech stack that we used to use, but we're not using anymore. And far too often, we're just paying the $19.99 a month and not paying attention to it.
This can also come in in an overhead perspective when we prematurely hire that middle management and leadership team. If you have expensive people on your payroll that aren't fully utilized because they don't have a full team to manage and a full workload, your overhead is gonna be bloated and your profitability is gonna be reduced. And this is also where consultants come in. A lot of people in the service-based businesses have coaches and are part of masterminds, and those are hugely valuable as long as you have an ROI. Make sure that the money that you're spending for that coaching, for those events, is bringing dollars back into your bank account. I'm part of a number of organizations, but I have a clear tracker that says, these are the events I went to, this was the audience, this is how many sales calls we gained from that, this is how many referral partners we gained from that event, and how many actual clients we gained.
And if I am part of an organization that in a 12 month cycle does not triple what my investment is, I leave that group and go to another one. And this in 2025, I was part of three groups and one of them is not holding its end up of the bargain. And I will not be part of that organization going forward because the ROI for that investment is not there. And I will be able to use those funds elsewhere. Don't just sign up for consultants and masterminds and events for fun.
Make sure that there's a return on investment for you profitability wise. And also high fixed payroll before your revenue stabilizes. If you have ups and downs in your revenue, but you have an expensive payroll, payroll people, contractors, there's an imbalance because even though this month you didn't bring in the $200,000, you still had a $70,000 payroll. So it's important to make changes. We've got a client that we're working with right now, their service provider, and they have a lot of seasonality in their business. ⁓ Q1 is just really slow for them. And so what we did in Q4 was we changed some of their team's compensation for the slow season and how they were getting paid and what our expectations were with them. And we actually lowered their compensation because in Q1, we did not have the revenue to carry that entire team. We didn't lay them off. We just changed their roles, changed their compensation, and Q2, they will go back up to their regular level. But if you have seasonality in your revenue, but a steady ⁓ fixed payroll, you're potentially losing profitability because you're not making changes within your team. Because somewhere between one and three million, business owners start building the company that they want instead of... the company that their margins can actually support. While we do want a C-suite and a middle managers and department leads and fulfillment and admins and marketing and sales and an IT and an HR and all of those roles, if your profit margins cannot support it and your revenue cannot support it, you don't need that big of a team. Fixed expenses rise faster than your gross profit. And it leaks profit out of your pocket, out of your bank account. And adding complexity without increasing- efficiency just costs you more money. And this is also where some business owners can start increasing their lifestyle, but they're taking too much of the company's cashflow and it's hurting profitability. So what do you do if this is something that you feel is affecting your business? All right.
Here's some fixes. Calculate your overhead as a percentage of both your grossed profit margin and your revenue and make sure that your prices is in alignment with your overhead. I did this exercise recently with a client and it was very eye-opening to them how much of every dollar was actually going to overhead. And they were able to make some changes in their marketing and specifically in their team compensation to get that more in alignment with their pricing.
Identify expenses that don't increase and implement quarterly expense audits because growth should increase optionally, not pressure. So what does an expense audit look like? Let me walk you through it. It's a 30 minute exercise. And I know entrepreneurs don't like numbers, but y'all get a glass of, get a cup of coffee and just hunker down for 30 minutes.
Here's what an expense audit looks like. Pull your company's P &L, bank statements and credit card statements for the last three months. Look at your revenue, look at your payroll expenses, and then look at the other top expenses in your business. Figure out where your money is going. Calculate your gross profit margin overall based on ⁓ each product or service that you have and your company as a whole.
And look at payroll as a percentage of revenue. It's a big number, most likely. This is a great opportunity to get in alignment. So look at your top expenses. Most likely payroll is in the one or two slot. Look at your gross profit margins. What can you cut in your expenses? There's got to be softwares that you're not using. I do an expense audit in my business every quarter. And when I did it in January,
In my business, and I talk about this all the time, I was able to save $80 a month. Now that doesn't seem like much, but $80 a month over time adds up. And it's all those little leaks that make a big difference. So you will be amazed at when you look at your gross profit margins, you look at your top expenses, and you look at your team utilization, how much money you are, is leaking out of your company and hurting your profitability.
And this is a time where you can start to negotiate with vendors. This is a great opportunity to go to your landlord and say, hey, if I pay 10 days early, can I get a discount? It's a great way to go to your team and restructure their compensation where, look, you can make top dollars, but I need to make sure that all 10 of these things are done. And I need to make sure that a five-star review is written by each of your clients once the project is done. Then.
you get this top tier. But if not, here's how your compensation is pro rated and going to be reduced. Your team is going to be more on fire to level up because they can make more money. And if they don't, it doesn't cost you profitability. So make those negotiations, have those conversations with your team to get these profit leaks in line. Price increases you need to be doing today and yesterday and the day and tomorrow. Make sure you are monitoring your costs and increasing those prices because
It's a combination, unless someone is stealing from you, there's these profit leaks all throughout your business. And it's a 1 % change here, 2 % change here, half a percent change there. And all of a sudden we've put three to five points, seven points back into profitability. And that's more money into your pocket, not just to reinvest back in the business, but to actually increase your personal wealth as the business owner and give you money. To reward your team with because then they're leveling up, their utilization is up, and I would happily pay your team more money because we're able to help more clients faster, which increases the company's profitability. Because profitability isn't something that you earn at the end of the year hoping for, it is something that you need to protect and be intentional and prioritize on a monthly basis. Look, if you need help understanding your numbers, and as I've talked to... about these activities and you're like, I don't even know where my PNL is. It's okay. My company, Pivot Business Group, would love to help. Just go to pamjordan.com and book a call with my team. We would love to walk you through our process. Because as you are scaling your business from zero to a million, a million to three, and a million to 10, you have to know your numbers. Founders just put their head down and grind. But if you want to be the true CEO and leader of your business, you have got to know your numbers.
Because at the end of the day, it's not what you make that matters. It's what you keep.