Why Your Accounting Practice Profit Margins Are Low (And How to Improve Them)

amarinder jaiswal

Oct 20

2 min read

WHY YOUR PRACTICE MARGINS ARE TOO LOW (AND HOW TO FIX IT)

Your practice margin should be 40-50%.

What's yours?

If it's less, you have a problem.

Low margins mean:

- Not enough profit

- Can't invest in growth

- Can't pay competitive salaries

- Can't afford technology/training

- Can't weather downturns

- Can't save for retirement

- Business isn't scalable (just trading time for money)

WHY MARGINS ARE LOW

1. Underpricing (charging less than you should)

2. Inefficiency (spending too much time on work)

3. Poor client selection (taking low-margin clients)

4. High staff costs (staff too expensive)

5. Overhead (rent, software, etc. too high)

HOW TO IMPROVE MARGINS

1. Raise prices (10% price increase = 20-30% profit increase if margins are 40%)

2. Efficiency (use systems, automation, outsourcing)

3. Fire low-margin clients (focus on profitable clients)

4. Use outsourcing (reduces staff cost, improves margins)

5. Specialize (focus on niche, charge premium)

Example: £500K practice with 30% margin

Current:

- Revenue: £500K

- Costs: £350K

- Profit: £150K

After improvements (raise prices 10%, improve efficiency 15%, use outsourcing for commodity work):

- Revenue: £550K (10% increase)

- Costs: £270K (efficiency + outsourcing reduces costs)

- Profit: £280K (87% increase)

All without hiring. Just better strategy.

Higher Revenue Doesn't Always Mean Higher Profit

Growing an accounting practice isn't just about winning more clients or increasing revenue. It's about ensuring the work you deliver generates sustainable profit.

Underpricing, inefficient workflows, rising delivery costs and low-margin engagements can quietly reduce your firm's profitability.

The solution? Build a more efficient practice—not simply a busier one.

By improving pricing, streamlining processes and using outsourcing strategically, accounting practice owners can create opportunities to strengthen margins without immediately increasing headcount.