Why Costing Your Sales Correctly Can Make or Break Your Business
In the world of business, few mistakes are as costly—or as avoidable—as miscalculating the true cost of sales. One of the most striking real-life examples we’ve seen involved a client who launched a security business with great ambition, but without professional advice.
At first, things looked promising. The business took off quickly, generating £100,000 per month in revenue. New contracts rolled in, new staff were hired, and the company expanded rapidly. On the surface, everything appeared successful.
But behind the scenes, there was a serious problem.
The Wrong Way to Price Your Services
The business owner had calculated his pricing using a very simple method:
“If I pay my employees £X per hour, I’ll add £X profit and charge that as my hourly rate.”
Unfortunately, this approach ignored several critical elements of cost of sales. The pricing model didn’t include:
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Employer’s National Insurance contributions
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28 days of paid holiday per employee
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Uniforms and equipment (e.g. walkie talkies)
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Administrative and operational overheads
Without these factors, the hourly rate was far too low—meaning the company was losing money on every job, even before covering basic overheads.
What the Numbers Really Showed
Although sales were strong, the business was running at a gross loss. Cash flow was consistently negative, and it wasn’t long before the financial pressure began to mount. By the time the owner realised what was happening, the damage was already done.
Just over a year after it launched, the business closed its doors.
The Lesson: Price with Precision, Not Guesswork
This case perfectly illustrates why accurate costing isn’t just a nice-to-have—it’s essential for survival. Many business owners underestimate the importance of factoring in all direct and indirect costs when setting prices. But without a clear understanding of your cost structure, even strong sales can lead to significant losses.
That’s why we always advise our clients to start with a solid financial foundation. With the right support, you can avoid these kinds of pitfalls, protect your cash flow, and build long-term profitability.
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