Are You Pricing Your Products Correctly?

How a manufacturer discovered a $1 million blind spot in their cost structure – and what it meant for their bottom line.

For manufacturers operating on tight margins, getting your pricing right isn’t just important – it’s everything. One miscalculation and you can find yourself signing contracts that are slowly bleeding the business dry. In this case study, we walk you through a real engagement where BridgePoint Group worked with a manufacturing business to untangle their overhead cost allocations, uncover a significant financial discrepancy, and put them in a much stronger position going forward. We’ll cover the business situation they were in, what the core challenge was, how we approached the work, and what came out the other side.

A Growing Business With a Hidden Margin Problem

Our client is a business operating in the manufacturing segment, producing a wide range of products across many different SKUs. Like most manufacturers, they were working in a high-volume, low-margin environment – the kind of business where the difference between a healthy profit and a difficult year can come down to a few percentage points.

The business was growing, which brought its own complexity. Growth in manufacturing typically means capital expenditure – new equipment, additional headcount, expanded facilities. In that context, understanding your true margin isn’t just a finance exercise; it’s what determines whether you can afford the next stage of growth.

Like many businesses of this type, their finance function had evolved organically rather than by design. They were tracking the obvious inputs – raw materials, direct labour, freight, and wastage – but the way they were handling overhead allocation was where things started to come unstuck.

Read: The Pricing Strategy Dilemma: Balancing Profitability and Customer Retention

What We Were Up Against

Here’s the core problem: most manufacturing businesses account for the direct costs of making a product quite well – the materials, the packaging, the labour on the floor.

What they often miss is the overhead of the facility itself – things like rent, utilities, equipment depreciation, supervisory salaries, maintenance, tooling, and spare parts. These costs don’t sit on the product directly, but they absolutely need to be allocated to it if you want to understand what it truly costs to produce.

When those overhead costs aren’t allocated properly, you end up with a distorted picture of your margin. And in a high-volume, low-margin business, a distorted margin picture is dangerous.

In this case, the business had projected consuming around $25 million in overheads across the year. However, due to a variance in production output – they made fewer products than anticipated – they only actually absorbed $24 million. The difference wasn’t picked up correctly, which left their financials overstating their gross margin by approximately $1 million, and equally overstating the value of finished goods inventory by the same amount.

Read: More Revenue, Less Money. Sound Familiar?

How We Worked Through It

BridgePoint Group came in to do a detailed analysis of the overhead structure of the business – specifically the overhead costs that directly related to manufacturing. The goal was straightforward: understand every relevant cost centre, look at the total volume of products being produced across all SKUs, and determine the correct overhead allocation rate for each product.

This sounds methodical – and it is – but there’s real nuance in doing it well. When a business is growing, you also need to factor in capacity. If a facility is only running at 70% of its potential output, you can’t simply divide overhead by current production and call it done. You need to think about the excess capacity, what additional CapEx might be on the horizon, and how those factors should flow through to the allocation model.

Read: Why outsourcing your CFO?

Once we’d worked through the analysis and landed on the correct overhead allocation rates, the business was able to update their ERP system so that the right amount of overhead was being applied to each product as it came off the line. That’s the important bit – it’s not enough to do the analysis once. The insight needs to be embedded into the operating systems of the business so that it’s reflected in real-time costing going forward.

The downstream benefit of that is significant. When your sales team is out quoting contracts – often 12 to 24 months in length – they’re working from a cost base that actually reflects reality. That means the margin built into the contract is real, not theoretical. And in contract manufacturing, where you can be locked into pricing for years at a time, getting that right from the outset is critical.

Cost Allocation – What Changed

The most immediate finding was the $1 million discrepancy – a combination of overstated margin and overstated finished goods inventory. That’s not an insignificant number, and identifying it gave the business an accurate baseline to work from.

From there, the business had the tools to make better decisions. With correct overhead allocation now flowing through to each SKU, their pricing conversations – both for new contracts and for renewals – could be grounded in what it actually costs to produce each product. The flow-on effects from there include reviewing purchasing arrangements, identifying potential efficiencies in the overhead structure itself, and ensuring that any contracts entered into going forward are priced to deliver a margin that the business genuinely needs.

For a business in this segment, those conversations aren’t abstract – they directly determine whether the business can fund its next round of capital investment, whether it can service its obligations, and ultimately whether it can continue to grow sustainably.

This kind of work isn’t glamorous, but it matters enormously. Many manufacturing businesses don’t know what they don’t know, and it often takes an outside perspective to surface the gap. The good news is that once you understand your true cost structure, you’re in a far better position to price confidently, grow sustainably, and protect the margins that keep the business healthy.

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Think your cost structure might need a closer look?

If your margins feel inconsistent, or you’re growing fast and want to make sure your pricing is keeping pace, BridgePoint Group can help. We work with businesses across the manufacturing sector to bring clarity to their numbers and confidence to their decisions.

Get in touch with the team at BridgePoint Group.