This case study is anonymised to protect client confidentiality. The financial figures have been adjusted proportionally to prevent identification, but the structure, methodology, and outcomes are as described.
The Situation
A professional services client — a mid-sized consultancy with €6.5M revenue and a team of 22 people — came to us in Q3 2023 with a problem they could feel but couldn't fully explain. Revenue was growing. Headcount was growing. But the founder was working harder than ever, making less than they had two years earlier, and the business felt financially more precarious despite being larger.
The immediate symptoms: cash was tighter than it should have been for a business of this size, a recent hire had caused more financial pressure than anticipated, and the management accounts (which had been prepared inconsistently) weren't giving a clear picture.
We started, as we always do, with the accounts.
What the Numbers Showed
The first step was getting three years of clean, consistently prepared management accounts. The founder had annual accounts from their accountant, but no monthly management accounts and no consistent P&L structure across the years.
Once the data was normalised and structured, the picture was clear:
Gross margin had fallen from 48% to 37% over 24 months. Eleven percentage points — a dramatic deterioration that had been almost entirely masked by revenue growth. On a €6.5M revenue base, the difference between a 48% and a 37% gross margin is €715,000 of gross profit. The business was carrying the same overhead structure on significantly less gross profit than it had been.
The causes were three-fold:
1. Direct costs had grown faster than revenue. Headcount additions to the delivery team were paid at higher market rates than the original team (reflecting both inflation and experience upgrades). But pricing hadn't been adjusted to reflect the higher cost base. The business was delivering more experienced work at prices set for more junior work.
2. Staff time was being under-billed. An audit of the previous six months of project files revealed that approximately 15% of billable hours worked were either not billed (scope creep absorbed without conversation) or written off post-delivery (project over-runs that the founder didn't feel comfortable billing). At an average charge rate of €180/hour, 15% write-off on a 1,800-hour-per-year delivery team was €145k of revenue not recognised.
3. Pricing had not been reviewed in 30 months. The last price increase had been in early 2022. Input costs (salaries, premises, technology, professional insurance) had risen by approximately 18–22% over the same period. Prices had not moved.
The Analysis We Built
Before recommending any pricing changes, we needed to understand the current cost-to-serve at the project level and what rates were needed to achieve a target gross margin.
Step 1: Full-cost rate card analysis. We calculated the true hourly cost of each fee-earner — salary plus employer taxes and social contributions, pro-rated across billable hours at the current average utilisation rate of 74%. This gave us an internal cost per hour by seniority band.
Step 2: Target margin by engagement type. We set a target gross margin by engagement type — retainer engagements, project engagements, and advisory day rates — and calculated the minimum charge rate required to achieve that margin at current cost levels.
The finding was stark. For experienced consultants, the internal cost per billable hour was approximately €95, and the current charge rate was €175. At 74% utilisation and accounting for write-offs, the effective gross margin on that rate card was 28% — well below the target of 45%.
Step 3: Market rate benchmarking. We pulled data from three sources: publicly available rate information from comparable firms, the founder's own knowledge of what peers were charging, and feedback from two trusted long-standing clients willing to be candid. The conclusion: the firm's rates were 15–25% below market, not merely below cost-recovery — the market had moved up and the firm had stayed still.
The Pricing Strategy We Recommended
We recommended a phased approach, not a single large increase, for two reasons: the firm's client base included long-standing relationships where a sudden jump in rates would need careful handling, and we wanted to test client price sensitivity before committing to the full adjustment.
Phase 1 (months 1–3): New engagements and renewals priced at revised rates — an average increase of 18% across rate card, reflecting the accumulated inflation and partial catch-up to market. No retrospective increases on live engagements.
Phase 2 (months 3–6): Annual review conversations with existing retained clients. Framing focused on the investment in team quality (a genuine and demonstrable improvement), not on "we need to increase our prices." Rate increases of 12–18% communicated with 60 days' notice.
Phase 3 (ongoing): Annual pricing review built into the business calendar. Minimum annual review with explicit inflation adjustment as a floor.
Alongside the rate increases, we implemented two operational changes: a project scope control process that required sign-off from the client on any work beyond the agreed brief before it was delivered (not after), and a monthly project-level P&L review that tracked billable hours vs budget by engagement.
What Happened
Twelve months after the engagement began:
Gross margin had recovered to 44% — not yet back to the 48% peak, but a 7-point recovery and on a trajectory to reach target within 6 months.
Revenue held. Client attrition from the price increases was one client — a small, high-maintenance account that represented 4% of revenue and was absorbing disproportionate management time. The founder's honest assessment was that losing it simplified the business.
Cash improved materially. The combination of higher margins and tighter scope control meant that EBITDA had increased by approximately €290k on an annual basis — significantly changing the business's cash generation profile.
The founder's income increased by 35%. Which was, in practical terms, the outcome they'd been hoping for without knowing that pricing was the primary lever.
The Broader Lesson
Most professional services businesses are underpriced. Not dramatically — but meaningfully. And most don't know it, because they've never done a rigorous cost-to-serve analysis, never benchmarked their rates against the market, and have a psychological relationship with their pricing that makes them reluctant to test the ceiling.
The work isn't complicated. It requires clean management accounts, honest cost analysis, and the willingness to have the pricing conversation with clients. The commercial result, in this case and in many others we've been involved in, makes it one of the highest-return engagements a fractional CFO can deliver.
BB Financial Services Kft works with professional services businesses on pricing strategy, cost analysis, and margin improvement. If your margins are declining without an obvious explanation, there's a good chance pricing is part of the answer. Get in touch and let's find out.
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