If you run a professional services business, whether it’s a marketing agency, an IT consultancy, a law practice, or a design studio, you’ve probably had this moment:
“Revenue looks fine on paper, but why does our profit feel so thin?”
You’re winning clients, your team is busy, and projects are moving. But the bank account doesn’t seem to reflect all that hard work. That’s a frustrating place to be.
The good news?
You don’t have to accept razor-thin profits. There are clear, practical ways to increase low professional services margins without burning out your team or lowering your standards.
Let’s break down what healthy margins look like and what you can do to get there.
What Healthy Margins Really Look Like
It’s easy to get caught up in top-line revenue. But gross and net margins tell you what you actually keep. A well-run professional services firm typically sees:
- Gross profit margins of 50–60% (after direct client costs like staff, freelancers, and project software)
- Net profit margins of 15–30% (after overhead)
If you’re under those numbers, don’t worry. We’ll take a look at the common gaps that cause profit margins to leak. Once you identify them for your firm, you can start plugging them.
Where Margin Usually Leaks And How To Fix Them
Underpricing Your Work
If you’re still charging by the hour or leaving fees flat for long-term clients, that almost always means you’re undercharging for the value you deliver. Instead, move toward value-based or outcome-focused pricing. It’s easiest to start with new proposals. For existing clients, build in small but regular increases; even a modest bump will compound over time.
Low Utilization Of Your Team
If your team spends too much time in meetings, training, or doing admin work when the workload is high, you’re paying for time that isn’t directly earning revenue.
Use timesheets to track billable versus non-billable hours and set realistic utilization targets for each role. Shift internal work to quieter periods so billable people stay focused on client work.
Scope Creep
Projects that drift beyond the agreed-upon deliverables, without extra payment, quietly shrink your profit. This can be prevented with clear contracts, defined deliverables and having a simple change request process in place. If a client asks for extra work, quote for it, instead of just doing it. By catching scope creep early, you save yourself both money and stress.
Bloated Overhead
Keeping overhead under control is just as important as raising revenue when it comes to margin health. Audit your fixed costs regularly and negotiate with vendors to bring costs down. Software subscriptions tend to add up fast, so it’s important to review regularly and cut tools that aren’t being used.
Unprofitable Clients or Services
Very often, firms think of holding on to all clients to retain revenue. But there are some clients or offerings that cost far more than they bring in. It’s crucial to review which clients are most profitable and consider off-boarding the ones that aren’t.
By shifting your service mix toward higher-margin offerings or narrowing your niche, you can make your delivery more efficient and charge more.
Quick Wins You Can Start With
You don’t need to overhaul everything overnight.
Here are small, consistent actions you can implement quickly:
- Run a quick financial health check: Pull gross margin by project and service, and track net margin monthly. Calculate utilization per role so you know who’s over or under capacity.
- Review your pricing: Build in value-based fees for new proposals and plan periodic price increases for existing clients. You can also offer tiered packages to steer clients toward higher-value options.
- Tighten scope control: Define deliverables clearly in proposals and contracts. For scope changes, always quote and approve extra time or cost. You also want to closely track projects that are trending over budgeted hours to understand underlying issues that can be fixed.
- Build recurring revenue: Try to shift one-off projects to retainers, ongoing services, or subscription-style offerings in order to help smooth out peaks and valleys. Regularly conduct business reviews with clients to demonstrate value, get feedback, and find upsell opportunities.
What You Can Do Next to Increase Low Professional Services Margins
Numbers like gross margin, utilization, and client profitability are often buried under day-to-day hustle. But you need the right financial reports to track these metrics monthly.
That’s where Affinity Accounting can help. We specialize in helping professional services firms across industries set up the right tracking and reports so you have the clarity to make decisions about pricing, staffing, or service mix.
Take a step towards building a more profitable firm.
Book a quick introductory call with us here.
