More Revenue, Less Money. Sound Familiar?

If your manufacturing business is producing less than 10% net profit, this article is going to sting a little – and that’s the point. In the next paragraphs, we unpack why so many capable manufacturers are leaving serious money on the table, walk through what it actually looks like to make profit a deliberate outcome rather than a lucky one, and share real-world examples from the manufacturing sector that show exactly how things go wrong – and how you fix them. Whether you’re running a tight ship or wondering why revenue keeps climbing while your bank account tells a different story, this is the read you didn’t know you needed.

The Problem No One Wants to Admit

Most manufacturing businesses are less profitable than they should be. Not because they’re poorly run. Not because the people aren’t trying. But because somewhere in the fabric of how these businesses operate, profit has been demoted from a goal to a by-product.

The culprit is almost always the same: insufficient gross margins. And the reason margins are insufficient is that sales teams go into pricing discussions with the presumption that their job is to say yes – at the best price they can get. There’s no floor. There’s no minimum gross margin that everyone knows, guards, and is held to account on. The goal is to close the deal, and the profit is whatever’s left over once everything else has happened.

That’s a problem. When net profit is the outcome of everything you do rather than the driver of everything you do, you’re effectively leaving your financial result to chance. You’re handing the keys to your sales team and hoping they make good decisions – without ever telling them what a good decision actually looks like.

And to be very clear: being busy is not the same as being profitable. Growing revenue is not the same as growing profit. A business can be absolutely flat-out – orders flowing, trucks running, people working – and still be quietly haemorrhaging money. In fact, in a business with the wrong margin structure, more revenue just makes the problem worse.

What ‘Profit on Purpose’ Actually Means

Manufacturers in the fast-moving consumer goods space should be targeting a net profit of between 10 and 15%. Not EBITDA – not the number that flatters by adding back interest, depreciation, and everything else that conveniently disappears before you get to the bottom line. Actual net profit. The figure in the accounting standards. What’s genuinely left in the owner’s pocket at the end of the year.

Fifteen per cent is a genuinely excellent result. Ten per cent is the floor – the minimum acceptable return given the risks involved in running a manufacturing operation. Anything below that, and the numbers simply don’t justify the exposure.

Here’s how you get there. You start with your overheads – all of them – and you understand which are fixed and which flex with activity. You know your inputs costs. Now add the profit you need to make. The sum of those three figures tells you the gross margin your business must achieve. That gross margin becomes your non-negotiable. It’s the number you walk into every customer conversation with. It’s not a starting position to be negotiated down from. It’s the floor.

This is what ‘profit on purpose’ means: the profit target drives decisions, it doesn’t just record them. It tells you what to charge, who to sell to, and – critically – when to walk away from a deal that doesn’t work. It shifts the entire orientation of the business from reactive to intentional.

Why Aren’t More Manufacturers Doing This?

Because manufacturers think about what they do, not why they do it.

Ask a manufacturer what their business does and they’ll describe the process – the raw materials, the production line, the logistics chain. They’ll talk about product quality, delivery reliability, customer relationships. All of it important. None of it the point. The point – the actual reason to be in business – is to generate a return on the capital invested and to compensate for the risks you take. Everything else is how you get there.

The risk involved in manufacturing is substantial and often underappreciated. These businesses carry significant debt. They carry plant and equipment. They carry workplace safety obligations, product liability, staff headcount, and a hundred other exposures that simply don’t exist if you fold the whole thing up and put the money in the bank.

Think about that seriously for a moment. A manufacturing business with $20 million in debt and $15 million in owner’s equity requires $35 million of total capital just to be in the game. At 5% net profit on, say, $30 million in revenue, that’s $1.5 million return on a $35 million investment. A term deposit offers comparable returns with zero operational risk. No forklifts. No factory floor. No product recalls. No director liability.

The only rational justification for accepting all that additional risk is a substantially higher return. That means 10 to 15%. Anything less, and the risk-reward equation simply doesn’t hold up.

Case Study 1: The Packaging Manufacturer

From 3% to a target of 12% – and climbing.

A packaging manufacturer operating in the Australian market was producing just 3 cents of net profit for every dollar of revenue. Three per cent. A business carrying substantial debt, running a full factory operation, and managing all the risks that come with it – for a return so thin it barely registered.

A net profit target of 12% was established. The business is now tracking at around 8.5% and climbing.

How did it get to 3% in the first place? The answer was structural, not accidental. When the business was examined in depth – each function consulted separately, the interdependencies mapped – a striking disconnect emerged between the finance team and the sales team.

The sales team was pricing products with no input from finance. Not reduced input. Not delayed input. None. They were making their own assessment of what it cost to produce their products, without access to current data, without a costing framework, and without any mechanism to ensure their assumptions were accurate.

Why? Because the financial information available to them wasn’t timely, wasn’t granular, and wasn’t reliable enough to act on. So they’d quietly stopped asking. They did the only thing they figured they could do.

The result was that the business was operating with two entirely separate understandings of its own cost of goods – one held by the finance team, one invented by the sales team. The owner had, perhaps reasonably, assumed there was a single, shared view. There wasn’t.

The mathematics of that situation are brutal. If a sales team believes it costs $3.00 to produce a unit and prices accordingly, but it actually costs $3.75, then every unit sold at $3.50 – which looks like a profit from the sales team’s vantage point – is a $0.25 loss. Scale that across thousands of units and you have a business that works harder every year and goes further backwards every year. Revenue growth accelerates the problem (until you run out of cash).

Fixing it required two things in parallel: a clearly defined gross margin target built backwards from the 12% net profit goal, and a rebuilt relationship between finance and sales – one where finance provides current, granular cost data and the sales team is expected and able to use it.

Case Study 2: The Consumer Goods Manufacturer

Growing revenue. Going nowhere.

A consumer goods manufacturer presented a different surface picture but an identical underlying problem. The business was growing. Revenue was up. The owner felt positive about the trajectory. From the outside, things looked healthy.

But the business wasn’t growing its profit. It was growing its revenue. Are they related concepts? Yes, sure. But they are not the same thing, and confusing them is one of the most common and costly mistakes in manufacturing.

Every manufacturing business has a bill of materials – a breakdown of the components required to produce each product and what each of those components costs. Properly constructed and maintained, a bill of materials is one of the most powerful tools in the business. It tells you exactly what it costs to make something. And if you build into it an allocation for overheads and a target profit margin, it tells you exactly what you need to charge for that product to hit your numbers. Not roughly. Exactly.

This business had a bill of materials. It just wasn’t being used that way. Finance maintained their version of the cost of goods. The sales team maintained theirs. Neither was shared. Neither was aligned. And the pricing that flowed from the sales team’s shadow costing system was, predictably, insufficient to deliver the margins the business needed.

The same dynamics were at play as in the packaging business. The sales team operated in a silo, not out of negligence but out of necessity – the financial information they needed wasn’t reaching them in a form they could use. The finance function was under-resourced: fewer people than the complexity of the business warranted, systems that couldn’t produce the granularity required, and a resulting gap between what finance knew and what sales needed to know.

Manufacturers consistently under-invest in their finance function, and they do it because they’ve defined their business as the thing it produces rather than the profit it exists to generate. Finance is treated as a compliance cost rather than a commercial asset. But a properly resourced finance team – with the right people, the right tools, and the right mandate – doesn’t just report on what happened. It shows you how to make more money. That’s a very different value proposition.

This Is a Culture Problem as Much as a Pricing Problem

Fixing the numbers is necessary. It’s not sufficient.

For a profit-on-purpose approach to take hold, the business needs to be genuinely clear on what it’s there to do. Not in a fluffy values-on-the-wall sense. In a practical, operationally embedded sense. If the culture of the business treats profit as a pleasant bonus rather than the fundamental objective, then the best pricing framework in the world will be quietly undermined every day by people making decisions that feel reasonable in isolation but collectively erode the margin.

When everyone in the business – from the CEO to the sales floor – knows the profit target and understands how their decisions affect it, something shifts. The sales team stops treating margin as someone else’s problem. Finance stops treating the sales team as a source of invoices to be processed. The KPIs that matter start to align with the outcome that matters.

And that alignment has to flow in both directions. Finance should be actively arming the sales team with the cost information they need to price properly – including per-product contribution margins, not just aggregated revenue lines that hide what’s really happening. The sales team should be feeding finance with forward-looking forecast data: volumes, pricing, delivery timing. That information is what allows finance to produce meaningful profit and cash flow projections.

If the finance team and the sales team in your business have never been in the same room working through a pricing decision together, that is a problem. Not a minor inefficiency. A structural problem with direct consequences for your bottom line.

Five Signs You Have This Problem Right Now

By definition, business owners (like everyone else), don’t know what they don’t know. Here are the five signs that your business has a profit-on-purpose problem – and that it’s costing you.

1. Your net profit is below 10%. This is the headline number. If you’re not hitting 10%, the risk-reward equation in your business almost certainly doesn’t stack up. Full stop.
2. You look at your financial reports and don’t fully trust them. That instinct is worth listening to. If the information coming out of your finance function isn’t timely, accurate, or granular enough to make confident decisions from, your finance team is either under-resourced, under-skilled, or both.
3. Your finance team can’t tell you the contribution margin for each product. A single revenue line tells you almost nothing useful. You need to know, product by product, how many cents in the dollar each unit of sales contributes to the bottom line. If you don’t have that visibility, you’re flying blind.
4. Your finance team and sales team don’t collaborate. Being in the same building doesn’t count. If they operate independently – if the sales team prices products without input from finance – your pricing is built on assumptions that may bear no resemblance to your actual costs.
5. Your finance team only tells you what happened, never what will happen, never what to do about it. A finance function worth its investment is proactively identifying opportunities to improve profitability – not just producing reports. If yours isn’t doing that, you’re not getting the value you’re paying for.

In other words

Manufacturing is hard. The risks are real, the margins for error are thin, and the capital required to play the game is significant. The only thing that makes all of that worthwhile is a strong, deliberate, consistently achieved net profit.

A packaging manufacturer went from accepting a result of 3% to setting a realistic target of 12% – and they’re well over halfway there. A consumer goods manufacturer is beginning the same journey, armed now with a clear diagnosis and a defined path forward.

In both cases, the capability was always there. The product was good, the team was capable, and the customers were buying. What was missing was the deliberate, structured, non-negotiable commitment to a profit outcome – and the internal alignment needed to deliver it.

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If your business is producing less than 10% net profit, you’re not stuck. You’re not doomed. You’re missing a framework – and that’s a fixable problem. But only if you decide to fix it on purpose. Reach out to us.

This article is based on insights and case studies from CFO advisory work in the Australian manufacturing sector. All client details have been anonymised.