The five margin questions manufacturers can’t answer quickly

Most manufacturers know their overall margin. Far fewer can say quickly where it’s being made and where it’s leaking. The five questions below come up in nearly every manufacturing business we’ve worked in. None of them is hard in principle. Each one takes days, because the data sits across the ERP, the costing model, the freight invoices and somebody’s spreadsheet.

The pressure on margin is real. In 2024–25, almost one in three Australian businesses (30%) said lower profit margins to stay competitive significantly hampered their activity, up from 21% in 2021–22, according to the Australian Bureau of Statistics.

1. Which customers are actually profitable?

Revenue and gross margin by customer are easy. The real picture includes what each customer costs to serve: order size and frequency, the changeovers their range causes, freight to their sites, rebates, payment terms and the time your people spend on them. Customers who look good on gross margin often look quite different once those are counted.

2. What does a changeover really cost?

Most costing models carry an average set-up cost. In practice, changeovers vary widely by product sequence, line and crew. Short runs and small orders push changeover cost up, and if pricing doesn’t recover it, the margin quietly goes with it. Knowing the real cost by product family is the first step to pricing it properly.

3. Is freight being recovered?

Freight costs move with fuel, carrier rates and lanes. Customer pricing often stays where it was. Comparing what freight actually cost on each customer’s orders with what was recovered in price shows where the gap has opened up. We often find contracts with no fuel adjustment clause at all.

Freight can move fast. The ABS reported road freight prices rose 15.5% in the June quarter 2026, on strong increases in fuel surcharges, the largest quarterly rise since the series began in 1997.

4. Why does one site cost more than another?

Two sites making similar products at different cost is normal. The question is why. Labour, scrap, energy, changeovers, product mix and overhead allocation all play a part. The answer usually sits across production, payroll and finance systems, and comparing like with like takes careful work.

5. What happened to margin after the last price increase?

A price increase goes out. Some customers accept it, some negotiate, some quietly cut volume or change how they order. Six months later, did margin improve the way it was meant to? Answering that means bringing pricing, volume and mix together customer by customer, and many businesses only find out at year-end.

Why they take so long

• The data sits in several systems that don’t share customer or product codes
• Cost allocations live in a spreadsheet that one person fully understands
• Freight costs arrive on carrier invoices, separate from the orders they belong to
• Each question gets answered from scratch every time somebody asks it

Each of these questions is answerable. The week goes on getting the data into one place.

Making them quicker to answer

The first step is usually the data: matching customers and products across systems, agreeing how costs are allocated, and tying freight costs back to the orders they belong to. Once that’s done and set up to run again, these questions take minutes instead of a week.

The second step is asking them regularly. Margin leaks gradually. A business that checks customer profitability monthly catches a problem in its first month. One that checks once a year finds a whole year of it.