How to Improve Business Profitability: Start with the Numbers

What if the discount you offer to win work is quietly making each sale less valuable? Australia’s cost-of-living crisis is squeezing customers, while a tightening economy is putting pressure on businesses. It’s understandable to feel pushed to lower prices, but more sales don’t automatically mean more profit. To improve business profitability, start with the numbers, not the pressure to say yes to every discount.

First, identify your break-even point. Then use the price-volume matrix alongside your sales figures to weigh a price change against the extra sales volume it would require. This article explains how to make those decisions deliberately, rather than hoping a discount pays off.

Shayne Jaenisch started coaching in 2005 for one of the biggest coaching firms in the world and received global recognition for his clients’ results in his first 12 months. He has over 21 years of business coaching experience, working with over 100 individual businesses across over 30 different industries. He started his first business at 23 years of age, giving him real-life experience spanning over 30 years. Alongside senior business coach Jodie Pomeroy, he brings practical perspective to the financial decisions shaping your company’s future.

Why improving business profitability starts with resisting reflex discounting

The cost-of-living crisis and a tightening economy are putting pressure on customers and Australian businesses. When work feels harder to secure, cutting your price can seem like the quickest way to win more sales. But will those extra sales leave your business better off, or simply keep you busier for less return?

Many business owners resort to discounting to win more work without considering the longer-term effect on gross profit. A lower price reduces the amount earned on each sale, and making up the difference may require a substantial increase in sales volume. Improving business profitability starts with understanding that trade-off, rather than reacting to pressure with an automatic price cut.

Why more sales may not mean more profit

Sales revenue is the money brought in through sales. Variable expenses change as sales activity changes, while fixed expenses continue regardless of how much you sell over a given period. Profit is what remains after expenses are accounted for. If sales rise alongside the costs required to make or deliver them, the additional revenue doesn’t necessarily become additional profit.

This distinction matters: higher sales don’t automatically create higher profits, so revenue alone can’t tell you whether your business is performing better. A break-even analysis helps you understand the relationship between revenue and costs. In the sections ahead, we’ll use business figures to establish the sales level at which income covers expenses.

The risk behind discounting to win work

A price reduction changes the volume you need to sell to maintain gross profit. The price-volume matrix makes that trade-off visible: at a 40% margin, a 10% discount requires a 33% increase in sales volume to maintain gross profit. That’s a substantial increase to rely on without evidence that the extra sales are achievable.

The matrix is a decision aid, not a promise that discounting will bring in enough customers. Nor does charging a higher price guarantee a better outcome. The guidance is sceptical of relying on pricing tactics alone: such strategies have rarely worked in the past and are unlikely to work in the future. Consider any price change against your actual figures and sales evidence.

Before offering a discount, pause and ask: what increase in sales would be needed to offset the lower price, and does your evidence support that expectation? Break-even analysis and the price-volume matrix can help you answer that question, so pricing decisions are deliberate rather than reflexive.

How break-even analysis shows the sales level your business needs

How much does your business need to sell before it stops operating at a loss? Break-even analysis helps answer this by relating sales volume, costs and revenue. At the break-even point, income exactly covers expenses and before-tax net profit is zero. It’s a useful operating reference, but its reliability depends on the figures and assumptions behind it.

The analysis uses estimated sales volume, fixed expenses and variable expenses. Under the model, fixed expenses stay constant while variable expenses move with sales volume. It also assumes the selling price per unit doesn’t change as sales volume changes. Actual results can differ when these assumptions don’t hold, so use break-even as a planning tool, not a guarantee.

Choose the break-even measure that fits your business

You can express the break-even point in sales dollars or units sold. Sales dollars show the revenue level the business needs to reach. Units sold show how many individual items or services need to be sold, which is useful when you track sales in consistent units. Either way, the aim is to understand the activity needed to cover expenses, not to mistake revenue for profit.

Read the figures before drawing conclusions

Consider this example: net sales are $1,200,000 and variable expenses are $720,000. Variable expenses are 60% of sales, leaving 40 cents from each sales dollar after variable expenses. That remaining amount contributes towards fixed expenses. These figures show the relationship between sales and variable expenses; on their own, they don’t establish a break-even result.

To use the analysis well, check that the estimates reflect your business and the period you’re reviewing. Changes in sales volume, fixed expenses or variable expenses can shift the break-even point. Don’t treat one estimate as a permanent target. Use it as a starting point to assess whether sales activity is covering operating costs.

Understanding the assumptions behind your figures is part of improving profitability. Harvard Business School Online also discusses ways to improve your organisation’s profitability, including paying attention to financial information and efficiency. For your own business, begin with the underlying figures and assess what they show about the sales level you need.

SA Business Coaching provides one-on-one business coaching to help you work through your figures and assumptions and consider what your break-even analysis means for your decisions. Learn more about one-on-one business coaching.

Use the price-volume matrix to test a discount before you offer it

A price change affects how much you need to sell to maintain the same gross profit. The price-volume matrix shows this trade-off in two tables: one gives the sales-volume increase required after a discount, and the other shows the volume decline a price increase can allow. Use the tables to test an assumption before changing your prices, not to predict how customers will respond.

Start with the gross margin that applies to your business. The figures below compare price and volume changes at specific margins. They aren’t forecasts, and they don’t guarantee that a discount will win more work or that customers will stay after a price increase.

What the discounting table says about volume

At a 40% gross margin, a 10% discount requires a 33% increase in sales volume to maintain gross profit. A 20% discount at the same margin requires a 100% increase in sales volume. The lower price means you need substantially more sales to preserve the same gross profit.

The comparison can look even more demanding at lower margins. At a 20% margin, a 10% discount requires a 100% sales-volume increase. At a 30% margin, a 10% discount requires a 67% sales-volume increase. These are gross-profit comparisons from the matrix, not promised sales outcomes. Before discounting, ask whether the required volume increase is realistic for your business.

How to read the price-increase table cautiously

The second table shows the volume decline a price increase can allow while maintaining gross profit. At a 40% margin, a 10% price increase allows a 20% sales-volume decline. At that same margin, a 20% price increase allows a 33% sales-volume decline.

At a 20% margin, a 10% price increase allows a 33% sales-volume decline. At a 30% margin, a 10% price increase allows a 22% sales-volume decline. These figures describe the relationship between price, margin and volume in the matrix. They don’t mean customers will accept a higher price or that raising prices will automatically improve business profitability.

Use the relevant margin row to compare your options, then weigh the volume change shown against your own sales evidence. Neither a discount nor a price increase is a sure path to stronger results. The matrix makes the trade-off visible, helping you base the decision on your figures rather than instinct alone.

A practical break-even review for business owners

Turn the concepts into a review of your own records. Use the past financial year as your reference period, then work through the sales-dollar break-even steps in order. The goal is to understand the sales level your business needs, not to force a pricing decision to fit a target.

Work through the sales-dollar break-even steps

1. List your expenses. Gather the expenses recorded during the past financial year.
2. Classify each expense. Mark it as fixed if it remains constant under the model, or variable if it moves with sales volume.
3. Express variable expenses as a percentage of sales. Use the sales and variable-expense figures from your records to identify that proportion.
4. Apply the basic break-even formula. Divide fixed expenses by the proportion of each sales dollar remaining after variable expenses. The result is the break-even point in sales dollars.

Be consistent with your classifications and the period covered by your figures. If an expense is difficult to classify, don’t guess and treat the result as precise. The analysis relies on estimates and assumptions, including that fixed expenses remain constant and variable expenses move with sales volume.

Turn the findings into a considered decision

Once you have a break-even figure, compare a proposed discount with the matching margin and volume figures in the price-volume matrix. Does the required sales-volume increase look achievable based on your business records? The matrix helps you examine the gross-profit trade-off, but it can’t guarantee customer demand or show that a discount will deliver an acceptable profit.

Use the figures to assess whether an acceptable profit can be achieved. If it can’t, don’t ignore what the analysis is telling you. Altering the business model or selling the business may need to be considered. These are serious decisions. A break-even review is a starting point for examining them, not a prediction of the outcome.

For another perspective on the financial decisions involved in growth, read Financial Growth Advisory for Entrepreneurs: Scaling Your Adelaide Business in 2026. SA Business Coaching offers one-on-one business coaching to help you examine your figures and pricing decisions as you work to improve business profitability. Explore one-on-one business coaching.

Improve business profitability with experienced, individual guidance in Adelaide

Break-even figures and price-volume comparisons are useful when they’re grounded in your business’s actual circumstances. In one-on-one coaching, you can examine the assumptions behind your figures, compare the matrix with your margin and sales evidence, and talk through the pricing decision in front of you. The aim is a more considered choice, not a promise that a particular price or strategy will guarantee profitability.

Bring the numbers and the decision into the coaching conversation

A practical conversation can start with the expenses and sales records you’ve reviewed. Are your fixed and variable costs classified consistently? Do the break-even assumptions still reflect how your business operates? If you’re considering a discount, what sales-volume change does the matching margin row in the matrix indicate you’d need to maintain gross profit? Working through these questions connects the calculations to the decision, rather than treating a figure as an answer on its own.

SA Business Coaching offers tailored one-on-one business coaching and financial growth advisory to help business owners examine their figures and decisions. That means looking at the information you have, clarifying what the analysis does and doesn’t show, and considering the longer-term implications of your pricing choices. Coaching supports financial decision-making, but it isn’t certified tax or legal advice, and no analysis can guarantee a particular profit outcome.

Founder Shayne Jaenisch started coaching in 2005 for one of the biggest coaching firms in the world and received global recognition for his clients’ results in his first 12 months. He has over 21 years of business coaching experience, working with over 100 individual businesses across over 30 different industries. He also started his first business at 23 years of age, giving him real-life experience spanning over 30 years. That perspective brings practical context to the figures and the decisions business owners face. Jodie Pomeroy is the senior business coach.

Take a clear next step with SA Business Coaching

Want a clearer view of the numbers behind your next financial decision? Explore strategic planning for small business for support in planning with purpose. To examine your figures and pricing choices with individual guidance, explore one-on-one business coaching with SA Business Coaching.

Make your next profitability decision with confidence

Improving your business’s financial position starts with evidence, not an automatic discount. Use break-even analysis to understand the sales level needed to cover expenses, then check the price-volume matrix to see what a price change could require in sales volume. More revenue alone doesn’t guarantee more profit, so bring your actual figures into every pricing decision.

One-on-one coaching can help you examine your assumptions and consider the longer-term effects of your choices. Shayne Jaenisch started coaching in 2005 for one of the biggest coaching firms in the world and received global recognition for his clients’ results in his first 12 months. He started his first business at 23 years of age, with real-life experience spanning over 30 years. Jodie Pomeroy is the senior business coach.

Take a considered next step: explore one-on-one business coaching with SA Business Coaching and build a clearer path to improve business profitability.

Frequently Asked Questions

What is break-even analysis?

Break-even analysis identifies the operating level where income exactly covers expenses and before-tax net profit is zero. It examines the relationship between sales volume, costs and revenue using estimated sales, fixed costs and variable costs. For Adelaide business owners, it can clarify how much the business needs to sell to cover expenses. It can’t guarantee profit or predict whether a particular business decision will succeed.

How do I calculate my business break-even point?

For the sales-dollar method, start with a list of expenses from the past financial year. Classify each expense as fixed or variable, express variable expenses as a percentage of sales, then use the basic break-even formula. The analysis can also be expressed in units sold. Keep your assumptions visible: the result depends on estimates and shouldn’t be treated as a guaranteed outcome or a fixed target for every period.

Can increasing sales improve business profitability?

It can, but increased sales don’t automatically mean increased profits. Variable expenses may rise as sales volume increases, while fixed expenses are treated as constant under the break-even model. Assess sales alongside expenses and gross profit rather than relying on revenue alone. The break-even methods, expressed in sales dollars or units sold, can help show how sales activity relates to costs and whether income is covering expenses.

Does discounting help a business become more profitable?

Not necessarily. In the price-volume matrix, at a 40% margin, a 10% discount requires a 33% sales-volume increase to maintain gross profit; a 20% discount requires a 100% increase. These are comparisons of price and volume, not promises that demand will rise enough to offset a discount. Before reducing your price, compare the required volume change with your business’s actual sales evidence.

What happens if my business sells more but still struggles to make a profit?

More sales don’t necessarily mean more profit, so review sales alongside variable and fixed expenses. Use break-even analysis in sales dollars or units sold to understand the sales level needed to cover expenses. If the figures indicate that an acceptable profit can’t be achieved, consider whether altering the business model or selling the business is appropriate. These are significant decisions to assess carefully, not automatic next steps.

Can a price increase maintain gross profit if sales volume falls?

According to the price-volume matrix, at a 40% margin, a 10% price increase allows a 20% decline in sales volume while keeping gross profit unchanged. At a 20% margin, a 10% price increase allows a 33% decline. These are specific table comparisons, not guarantees that customers will accept higher prices or that sales volume will respond in a particular way.