Revenue is up but profit is down. There are four causes.

If revenue is up and profit is down, there are only four possible causes. The growth came from your thinner products. Your realised price fell while your list price held. The new volume costs more to serve than the old volume. Or input costs rose faster than your prices. Usually it is two of the four at once.

Which two is not a matter of judgement. It is a matter of transaction-level data, and if you have never assembled it, that is not an oversight on your part. Nobody has ever asked you to.

Revenue is a sum. Margin is a weighted average.

This is the cause owners suspect last, because there is no villain in it. Revenue adds up. Margin does not. It averages, and the average is weighted by whatever grew.

Take a company with two lines. Line A sells at a 45% gross margin, line B at 22%. Neither margin moves all year. Line A grows 5%, which is respectable. Line B grows 40%, which everybody in the building is pleased about.

Illustrative arithmetic. Neither line’s margin moved by a single point.

Line	Year 1 revenue	Year 1 gross profit	Year 2 revenue	Year 2 gross profit
A — 45% margin	CHF 6,000,000	CHF 2,700,000	CHF 6,300,000	CHF 2,835,000
B — 22% margin	CHF 4,000,000	CHF 880,000	CHF 5,600,000	CHF 1,232,000
Total	CHF 10,000,000	CHF 3,580,000	CHF 11,900,000	CHF 4,067,000
Blended gross margin	35.8%	—	34.2%	—

Revenue up 19%. Blended margin down 1.6 points. No customer negotiated anybody down, no supplier raised a price, nobody made a mistake, and every single line grew.

Gross profit did rise, by CHF 487,000. Now add the part that turns a margin story into a profit story. Carrying 40% more of line B usually needs more space, more picking, more customer service, sometimes one more person. Thin lines are rarely light to serve. That is often why they are thin. If the cost of carrying that growth came to more than CHF 487,000, the operating line went backwards in a year when the sales team beat every target it was given.

Your list price never moved. Your realised price did.

Realised price is what actually arrives, after everything you gave away to get the order: the discount, the annual rebate, the freight you absorbed, the payment terms you extended, the samples, the tooling you did not charge for, the “we’ll throw that in” that nobody logs anywhere.

Simon-Kucher’s Global Pricing Study 2025 asked more than 2,200 leaders across 28 countries and 39 industries what share of their planned price increases they actually realise.

43% is the average price realisation rate reported in Simon-Kucher’s Global Pricing Study 2025 — down five points in two years, while 64% of the same leaders reported higher pricing pressure, up from 57% in 2021.

Read those two findings together, and add a third from the same study: only 40% of leaders rank pricing as their top profit lever. Pressure rising, realisation falling, attention elsewhere. Those are not three facts. They are one situation described from three sides of the same table.

The gap between the price you publish and the price you are paid appears nowhere on your profit and loss account, because it was never billed in the first place.

The same firm’s 2017 study of roughly 2,000 companies found that 97 out of 100 failed to achieve their price-increase targets, and that companies realised only 32% of the increases they planned. That arithmetic is worth doing slowly. A 5% increase — announced internally, briefed to the sales force, written into the budget — delivers about 1.6%, because 5% × 0.32 = 1.6%. The other 3.4 points were given back one account at a time, by people doing what they believed their job required.

That study is now some years old and it is self-reported, which I would rather say than not. It has yet to stop matching what I find in an order book.

Two customers of the same size are not the same customer

Cost to serve is the difference between a customer who orders once a month in full pallets, to a standard specification, on agreed terms — and a customer of identical annual revenue who orders four times a week in cases, wants a variation on the product, takes an extra thirty days, returns a meaningful share of what arrives, and absorbs a day of your sales manager’s week.

In my experience two accounts of matching revenue can differ by a factor of several in what they cost you. On the sales report they are twins. And they stay twins, because cost to serve is almost never allocated in an SME’s accounts. It sits in overhead, spread evenly across everything, which is precisely the assumption that makes the demanding customer invisible.

Input costs are the cause everyone checks first

It is the one most owners look at, and the one they have least control over. It is also the easiest to verify, which is part of why it gets checked first, and part of why it is so often not the whole answer.

There is a useful diagnostic buried in it. If input costs alone were doing this, the margin fall would be roughly even across the range and would line up in time with the supplier increases. Mix shifts and price erosion are uneven by nature. They concentrate in particular lines, particular customers, particular salespeople. An even fall points at costs. A lumpy one does not.

How to tell the four apart

Each cause leaves a different signature, and the signatures only become visible when the data is cut two ways at once — by product and by customer.

What each cause looks like when revenue and cost are cut by product and by customer.

Cause	Signature in the data
Mix shift	Product-level margins flat or improving while the blended margin falls. Growth concentrated in the thinnest lines.
Realised-price erosion	Margin falling on products whose list price never changed. Wide dispersion in the realised price of the same item across customers.
Cost to serve	Product margin holds, customer margin falls. Concentrated in high-frequency, high-touch, high-return accounts.
Input costs	Margin falls broadly evenly across products and customers, timed to supplier increases.

Why the biggest customers are so often the least profitable

What I usually find, once contribution margin is finally laid out by customer, is that the ranking by revenue and the ranking by profit are close to unrelated — and that several of the largest accounts sit near the bottom of the second list.

There is nothing mysterious in it. Large accounts are large because they were won, and they were won on price. They renegotiate more often because they are worth renegotiating. They demand more service because they can. In a founder-led or family company the effect tends to be stronger rather than weaker, because the biggest accounts are usually the oldest relationships. They have been quietly discounted for twenty years, in increments, by people who are no longer in the building. Nobody ever decided to give that margin away. It went one reasonable concession at a time.

That finding also changes what a concentrated customer base means. If your largest account is your thinnest, losing it costs a great deal less profit than it costs revenue, and I have seen cases where it costs almost none. The real cost of customer concentration turns out to be a different argument entirely, and not the one owners expect.

The lever with the most arithmetic behind it, and the caveat that comes with it

Marn and Rosiello’s 1992 analysis in the Harvard Business Review worked out what a 1% improvement in each of four levers does to operating profit, using the average economics of the 2,463 companies in the Compustat aggregate.

Effect of a 1% improvement in each lever on operating profit — average economics of 2,463 companies (Marn & Rosiello, HBR, 1992).

Lever	Change in operating profit
Price	+11.1%
Variable cost	+7.8%
Volume	+3.3%
Fixed cost	+2.3%

Price improvements therefore carry three to four times the profit effect of proportionate volume increases. That figure gets quoted constantly, almost always without what follows it, so here is what follows it.

This is arithmetic on average company economics. It is not an empirical finding about what happens when firms actually raise prices. It holds volume constant, which is exactly the assumption in question, because the reason nobody raises price is fear of what happens to volume. I state that caveat every time I use the number. What the table honestly shows is sensitivity, not outcome. It tells you which input your operating profit responds to most. It tells you nothing whatsoever about whether your customers will stay.

What this means in practice

The data that answers this question is not in your annual accounts. It is in your invoice lines: date, customer, item, quantity, gross price, and then every deduction held as its own field rather than netted off — discount, rebate, credit note, freight, commission. Add delivery cost and returns by customer. Twelve to twenty-four months of it.

Rebuilt that way, the four causes separate on their own. You get contribution margin by product, contribution margin by customer, and the dispersion of realised price for the same item across your customer base. That last one is usually the most uncomfortable chart in the set, because it is where the sales force’s accumulated judgement becomes visible all at once. It also sits underneath a much larger question, since the shape of that distribution is one of the things a buyer prices when the company eventually changes hands — which is a good deal of why offers come in below expectation.

Most companies can produce this. The data already exists inside the ERP or the accounting package; it has simply never been asked to come out in that shape. The work is in the cleaning and the definitions — what counts as a cost to serve, whether the intercompany transfer is a price or an allocation, whose margin the sales commission comes out of. Those decisions determine the answer, which is why they are worth arguing about before the analysis rather than after it. If you already track the four numbers, this is the layer directly beneath them.

What this cannot tell you from the outside

Nothing written here can tell you which of the four causes is yours. Anyone who says otherwise, on the basis of your industry or the shape of your revenue line, is guessing at your expense.

Your accountant or Treuhänder has not told you either, and it is worth being precise about why. Their job is to produce a true and fair view of what happened, in a format the tax authority and the bank recognise. That format aggregates. It nets discounts into revenue, it holds cost to serve in overhead, and it never once asks what an individual customer contributed. It is a correct answer to the question they were asked.

Contribution margin by customer is a different question, put to the same underlying data by somebody who has been engaged to put it. I have yet to meet an accountant who refused to look. I have met a great many owners who never asked.