You're running a manufacturing business. Sales are up, orders are flowing, customers are happy. But when you look at your bank account, something doesn't add up. Where's the profit?
This is the story of every manufacturing company we work with. They're doing everything right—quality products, good customers, efficient operations. But their margins are shrinking, their cash flow is tight, and they can't figure out why.
The problem isn't with their business. It's with their numbers. Most manufacturers are flying blind when it comes to profitability. They know their total costs, but they don't know which products are profitable and which are losing money. They know their revenue, but they don't know which customers are worth keeping and which are destroying their margins.
The Hidden Profit Killers
After working with hundreds of manufacturing companies, we've identified the five most common profit killers that destroy margins without anyone noticing:
1. Unprofitable Product Lines
You have products that are losing money on every sale, but they're mixed in with profitable ones. Your P&L shows total revenue and total costs, but it doesn't show which products are profitable and which aren't.
2. Customer Profitability Issues
Some customers are profitable, some aren't. But without proper cost accounting, you can't tell the difference. You might be losing money on your biggest customer and making it up on smaller ones.
3. Hidden Overhead Allocation
Your overhead costs are allocated based on revenue, not actual usage. High-overhead products look more profitable than they are, while low-overhead products look less profitable.
4. Labor Cost Misallocation
Labor costs are spread evenly across all products, regardless of how much labor each product actually requires. Complex products that require more labor look more profitable than they are.
5. Material Cost Tracking Issues
Material costs are tracked by month, not by job or product. You can't see which products are using more expensive materials or which jobs are going over budget.
The Cost Accounting Solution
The solution isn't complicated. It's just proper cost accounting. You need to track costs by product, by customer, by job. You need to allocate overhead based on actual usage, not just revenue. You need to build a system that shows profitability at the product level.
This isn't about hiring more accountants or buying expensive software. It's about organizing your existing data in a way that gives you visibility into what's driving profitability and what's destroying it.
Most manufacturing companies already have all the data they need. They just need to organize it in a way that makes sense for decision-making.
The Implementation Process
We start by separating your costs by product line. We track labor hours by product, not just by month. We allocate overhead based on actual machine time and setup costs. We build a product-level P&L that shows the real story.
Then we do the same thing for customers. We track which customers are profitable and which aren't. We identify the customers that are worth keeping and the ones that are destroying your margins.
Finally, we build a system that shows profitability by job. Every new order gets evaluated through the lens of profitability. You know which jobs are worth taking and which should be declined.
The Results
The results are always the same. Companies find 15-25% more profit just by understanding their costs. They stop taking unprofitable orders. They renegotiate pricing with unprofitable customers. They focus their resources on their most profitable products and customers.
But the real benefit isn't just the immediate profit improvement. It's the long-term strategic advantage of knowing your numbers. You can make informed decisions about pricing, product development, customer relationships, and resource allocation.
You're not just running a business—you're running a profitable business.
Getting Started
The first step is simple. Start tracking your costs by product. Separate your labor, materials, and overhead by product line. Build a product-level P&L that shows which products are profitable and which aren't.
Then do the same thing for customers. Track which customers are profitable and which aren't. Identify the customers that are worth keeping and the ones that are destroying your margins.
Finally, build a system that shows profitability by job. Every new order gets evaluated through the lens of profitability. You know which jobs are worth taking and which should be declined.
It's not complicated. It's just proper cost accounting. And it's the difference between running a business and running a profitable business.