We had a client who was certain their margins were 70%. They were 45%. And before you think “that would never happen to me” — they thought the same thing.
The scary part isn’t the gap itself. It’s everything that came with it. Years of discounts they couldn’t actually afford. Pricing built on assumptions that hadn’t been revisited since the business looked completely different. A service line they’d been investing in heavily that was quietly one of their worst performers. And their best, most loyal clients? Significantly undercharged — for years — because there was never clean enough data to see it.
None of this happened because they were running the business carelessly. It happened because their accounting was never set up to give them the right answer. The books balanced. The top line grew. Everything looked fine. But the margin number in their head was fiction, and every decision downstream of that number was built on it.
The good news is that once they could actually see their real margins — by service line, by client, properly categorized — the fixes were obvious. They didn’t overhaul their pricing overnight or fire anyone. They just stopped making decisions in the dark.