How to Increase Profit in a Tough Environment

In today's economy, a growth-focused mindset is a given, but the conversation has shifted. It's no longer just about top-line expansion—it's about the bottom line, especially in an environment where capital is more expensive and consumer behavior is less predictable.

 

The latest Deloitte CFO Signals survey for Q4 2024 revealed that nearly 60% of CFOs expect operating margins to decrease over the next 12 months, driven by inflationary pressures and rising labor costs. This isn't just a big-company problem; smaller and mid-sized businesses are feeling the squeeze even more acutely.

 

Simultaneously, the Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) rose by 3.4% in the year ending December 2024, continuing to put pressure on input costs. While this is a decrease from the peak, the persistence of inflation means that businesses cannot simply wait for prices to fall. They must actively manage their cost structures and pricing strategies to protect profitability. This data underscores a critical reality: the old playbook of 'grow at all costs' is out. The new strategy is 'grow with purpose,' with a laser focus on sustainable and profitable growth.

 

 

The phrase "tough environment" gets thrown around a lot. But for a business owner or a finance leader, it means something very specific: a scenario where revenue growth gets harder while costs continue to climb. It’s like trying to paddle a canoe upstream against a strong current. You can paddle faster, but you’ll burn a lot more energy just to stay in place, let alone move forward. The most successful businesses in this climate aren't the ones with the strongest arms, but the ones with the smartest strategy.
 

Your first move must be to go beyond the P&L statement.

Traditional cost-cutting is a blunt instrument. It often sacrifices long-term strategic investments for short-term gains, a move that can cripple future growth. Instead, you need a surgical approach. This means segmenting your business by product, service line, customer segment, or even sales channel and scrutinizing the profitability of each. What you'll often find is that 20% of your offerings or customers generate 80% of your profits, while a significant portion of the rest might be operating at or near a loss. This isn't just a hypothesis; research from the Harvard Business Review has repeatedly shown that in many companies, a small group of customers or products are responsible for the vast majority of profits.

 

To fix this, you need to understand not just revenue, but the true cost of serving each segment. This involves looking beyond direct costs to include overhead, customer acquisition costs, and even the time and resources your team spends on a particular client or product. Once you identify the low-margin or unprofitable areas, the path forward is not always to eliminate them. Sometimes, it's about adjusting pricing, renegotiating supplier contracts, or refining your service delivery model to improve efficiency. It's about turning a liability into an asset or, if necessary, making the strategic decision to let it go.

 

This level of detailed analysis is where a lot of businesses stumble. They have the data, but it’s siloed in different spreadsheets or systems. The true challenge is synthesizing it all into a single, cohesive view of business performance. Think of it like a doctor looking at an MRI, blood work, and a patient's symptoms all at once to make a diagnosis. No single data point tells the whole story. You need to combine your internal financial data with external market trends, competitive intelligence, and even customer feedback to build a complete picture of your profit health. Ultimately, increasing profitability in a tough environment isn't a one-time project; it’s a continuous process. It requires the discipline to regularly review your financial performance, question your assumptions, and be willing to make hard choices. The companies that thrive are the ones that treat their financial data not just as a compliance requirement but as a powerful strategic tool.

 

 

Professional services firms, from law practices to marketing agencies, often face a unique profitability challenge: their product is their people. While they might not deal with raw material inflation in the same way as manufacturers, they are heavily exposed to rising labor costs and the intensifying war for talent. According to a recent PwC CEO Survey (2025), talent acquisition and retention remain a top concern for CEOs across industries. This means that a key component of profit growth for these firms is not just billable hours, but the efficiency and utilization of their teams.
 

Many professional services firms fall into the trap of "scope creep," where the project expands beyond the initial agreement without a corresponding increase in fees. This silently erodes margins. To counter this, successful firms are using technology to track project profitability in real-time. They are also implementing more rigorous project management methodologies and ensuring that every proposal includes clear, defined boundaries. Beyond this, they are strategically leveraging fractional or specialized talent for non-core functions, a model that provides access to expertise without the full-time employee overhead.

 

Practical Takeaways

 

Implement a Profitability Segmentation Analysis

Don't just look at total revenue and profit. Segment your business by product/service, customer type, or geography. This will reveal which segments are truly profitable and which are draining resources.

 

Conduct a Zero-Based Budgeting Review
 

Instead of simply adjusting last year's budget, build your expense budget from the ground up. Justify every single cost line item. This forces you to question long-held assumptions and eliminates unnecessary spending.

 

 

Time Renegotiate Supplier and Vendor Contracts

As economic conditions shift, so do pricing structures. Don't assume your current rates are the best you can get. Open a conversation with your key suppliers to see if there are opportunities for cost savings, whether through volume discounts, new terms, or alternative materials.

 

Leverage Technology for Automation

Look for areas where technology can replace manual, repetitive tasks. This isn't about eliminating jobs, but about freeing up your team to focus on higher-value activities that directly impact the bottom line. Automation of accounting functions or marketing processes can be a quick win

 

Looking Ahead

 

The economic indicators point to a future where volatility is the new normal. The days of uninterrupted growth fueled by cheap capital are over, at least for the foreseeable future. Instead, we are entering a period where resilience and adaptability will be the defining characteristics of successful companies. This means that proactive financial management will become more important than ever. Companies that can quickly identify and act on shifts in their profitability drivers will be the ones that not only survive but thrive.

 

We anticipate a significant shift towards more flexible operating models. The fractional CFO and Controller model, which provides executive-level financial guidance on an as-needed basis, is not just a trend; it's a strategic necessity for businesses that need to scale their financial expertise without the burden of a full-time, in-house team. The companies that embrace this type of strategic flexibility will be better equipped to navigate the complexities ahead.