Recently, I talked about pricing and why most business owners avoid the conversation, but yet it's usually the single biggest lever you can pull.

A few people reached out after that one, which was great. But a couple of conversations made me realise something: talking about pricing without talking about what sits around it is a bit like telling someone to eat better without opening the fridge, you need to see what you're actually working with.

This is the part of business which does work like a maths equation, and as such we're going to talk about it as one.

Margin = Price – Costs

That's the equation. Three moving parts. A mini series, if you will bear with me.

This month we focus on margins what they actually tell you, and why most people glance at them without really looking. Next month: pricing and how to set it properly, not just guess and hope. The month after: we look at costs, the bit nobody wants to look at, but everyone should.

Most people know their margin. Fewer people understand it.

Let's quickly define margin and mark-up, because without writing it down, it can be hard to keep them straight. I find the simplest way to think of it is:

• Mark-up: You've added money onto the cost to set your price.
• Margin: That's what you keep as profit. Mark-up will always be the higher number.

You can probably tell me your gross margin off the top of your head. Maybe your net too. But what does it actually mean to your business? Do you understand the impact the levers will have on your margins if you pull on them? Could you tell me which clients are actually profitable? Which services make you money, and which ones you deliver at cost because you've always done them and it feels awkward to stop?

We all do it. We've made this mistake in the past, and we're still trying to solve some of these issues ourselves.

When you see it in the numbers, it's really telling.

The graphics here are powerful, because when you understand the impact on your business, you can really start to see what happens when you increase your prices, and how much sales can actually drop while keeping revenue at the same level. When you see it plainly in the numbers, it hits differently.

A word on discounting.

Looking at those graphs, discounting looks like the worst thing you could do, right?

Wrong. When used correctly, it can drive sales. Yes, your margins drop, but one of my favourite sayings comes into play here: you can't spend a percentage point, you spend real money.

Discounting can bring in more sales and more cash overall. That's fine in practice, as long as you understand the impact on your bottom line. The problem isn't discounting itself, it's discounting without knowing what it's doing to your numbers.

Revenue is vanity, profit is sanity, but margin is clarity.

You've heard the first part before. But margin is where it gets practical, and who doesn't like a catchy subheading?

Two businesses can turn over the same amount and look entirely different underneath. One is comfortable, reinvesting, paying the owners properly. The other is scrambling, chasing invoices, and wondering where it all goes.

The difference is almost always margin. Not revenue. Not how busy you are.

So what does good look like?

Professional service businesses will find that for the most part, their profit margins with staff sit between 33%–50%. Does that mean if you fall into those brackets, you're doing badly? Not at all. The context in your business might mean you've done that for a reason.

Margin isn't just a financial metric; it's a measure of how well your business is actually working.

A healthy margin means you've got breathing room. Room to invest, to hire, to say no to work that doesn't fit. Room to actually enjoy the thing you built.

A thin margin means the opposite. You're busy, revenue looks fine on paper, but there's nothing left at the end of the month. And every unexpected cost (a refund, a late payment, a supplier putting their prices up) hits harder than it should.

Unfortunately, some industries don't have much opportunity to control this when working to razor-thin margins. Government decisions can really impact whole sectors, think hospitality and employers' NI, rate changes.

If that sounds familiar, and it does for many people, it's probably not a revenue problem. It's a margin problem. And that's actually good news, because margin is something you can do something about.

A lot of the time, the issue I see with owner-managed businesses is they don't factor in a living salary into these calculations. For the record, £12,570 is not a living salary.

Three questions worth sitting with.

1. Do you know your margin per service, or just your overall number?
2. Are there clients you'd be better off without, but you keep because losing revenue feels worse than losing profit?
3. When was the last time you actually looked at what it costs you to deliver what you sell?

If those questions make you slightly uncomfortable, good. In my experience, that's usually where the useful stuff is.

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