The one report most Irish SMEs never run, gross margin by customer
Company-level margin hides the problem. Once you split it by customer and by job, the two or three accounts quietly funding everyone else become obvious.
Tommy Boyle, Founder, Business Answers · 27 January 2026 · 7 min read
The short answer
- A single company margin figure is an average, and averages hide the accounts that lose money.
- Split gross margin by customer, then by job or product line, using real cost to serve rather than a standard percentage.
- In most owner-managed businesses, a fifth of customers produce well over half the gross profit, and a handful produce none.
- The report takes a day to build the first time and an hour a month after that.
Nearly every owner can tell me their gross margin percentage. Very few can tell me which customers are above it and which are below it, and that second answer is where the money is.
What to include in cost to serve
Direct materials and direct labour, obviously. Then the costs that usually get buried in overhead, delivery, site visits, rework, warranty, the time your office spends on queries and paperwork for that particular account, and the cost of money where payment terms run long.
You do not need perfect numbers. Reasonable estimates applied consistently will get you to the right conclusion, and precision can come later.
What the report usually shows
A concentration you had not seen, where a small group of customers produces most of the gross profit. A tier in the middle that is fine. And a tail that costs you money to serve, often including one account everybody in the business assumes is important because of its revenue.
It also tends to reveal a product or service line that is loss-making on delivery, kept alive because it was where the business started.
What to do with it
Three actions. Reprice the tail. Protect and grow the top group, which usually means giving them more time rather than more discount. And decide whether the loss-making line gets fixed, repriced or stopped.
Run the report monthly from then on. It is the cheapest management information a business of this size can have, and it changes decisions rather than describing them.
How to build it in a day
Pull twelve months of sales by customer. Beside each one, put direct cost from your job or purchase records. Then add a simple loading for the costs you know are not evenly spread, deliveries, site visits, rework and the administration that a particular account generates. Ask the people who deal with those customers rather than guessing, they will tell you inside an hour which accounts eat time.
Finish with two columns, gross profit in euro and gross margin as a percentage. Sort by euro. That order is almost never the order the business behaves as if it believes.
Read it with the risk in mind, not just the margin
Once you can see that a small number of accounts carry most of the gross profit, you are looking at a concentration risk as well as a pricing opportunity. It is the same page a buyer will eventually build about your business, and they will draw the harder conclusion from it.
So the report has two uses. This year it tells you where to reprice. Over the next three years it tells you where the value of the business is exposed, and how much of the profit rests on relationships you personally hold.
The conversations it starts inside the business
Expect disagreement. Someone will defend the loss-making account, usually on the grounds of the revenue or the length of the relationship. That argument is worth having with numbers on the table rather than in the abstract, and it is often the first time the team has seen what the business actually earns from the work it does.
If the page throws up something you did not expect, and it usually does, that is a good hour to spend with someone from outside the business before you act on it.
Talk it through
Talk your business through with Tommy Boyle
A free 30 minute call with Tommy Boyle. You bring the situation, he tells you what he would look at first and whether there is a piece of work worth doing. Nothing is sold to you on the call.
Or email tommy@businessanswers.ie
Questions owners ask
- What is cost to serve?
- The full cost of delivering to a particular customer, including direct costs plus delivery, site visits, rework, administration and the cost of extended payment terms. It is usually higher than the standard cost allocation in the accounts.
- How often should I run a margin by customer report?
- Monthly once it is built, with a fuller review annually before pricing decisions. The first build takes about a day of work with your bookkeeper or accountant.
- Should I drop unprofitable customers?
- Reprice first. Some accounts become fine at the right price, and some are strategically useful for reasons other than margin. Only stop serving an account after you have tested the price and looked at what capacity it frees.
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