Start with a P&L by segment
Total P&L tells you nothing. Slice it by:
- Product / service line
- Customer segment
- Sales channel
- Region
You'll usually find 20–30% of the business is losing money on a fully-loaded basis.
The contribution-margin lens
For each segment:
Contribution = Revenue − Variable cost of delivery
Fixed overheads come after the contribution line. Decisions about pricing, mix and capacity should be made on contribution, not on net margin.
Variance analysis
For each material P&L line, break the variance into:
- Price (your prices vs budget)
- Volume (units vs budget)
- Mix (proportion of high vs low-margin products)
- Cost (input cost vs budget)
This tells you why margin moved — not just that it did.
The "rule of 40" for SaaS
Growth rate (%) + Net profit margin (%) ≥ 40%
A useful single benchmark for software-style businesses. Below 40% over multiple quarters signals either over-investment or weak unit economics.
The 80/20 customer pass
- List customers by revenue, descending
- Compute cumulative revenue %
- The top 20% usually drive 80% of revenue
- The bottom long tail often costs more to serve than it pays
Actions: politely raise prices on the bottom 20%, or move them to a lower-touch self-serve product.
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