Know to Grow: What Every Business Must Understand Before Growing Profitably

Growth is exciting. It’s what every entrepreneur and business leader works toward. But here’s the reality: growth without a plan, especially a profitable plan, can do more harm than good.

In a recent episode of Profitability Playbook: The Simple Numbers Podcast, hosts Brandon Gray and Mike Maxson lay the groundwork for a powerful concept: you need to “know to grow.” Before you chase top-line revenue, you must understand what truly drives sustainable, profitable expansion.

This blog breaks down the key insights from their conversation and what they mean for your business.

Growth Starts After You Get Your House in Order

Before diving into growth strategies, there’s a critical prerequisite: stability.

Businesses must first understand and manage labor effectively, hit profitability targets, and establish operational consistency. Only then are you positioned to grow responsibly.

Growth is not just about “getting bigger.” It’s about getting better while getting bigger, which requires clarity, discipline, and data.

Why Most Businesses Struggle to Grow Profitably

Many businesses set growth goals, but few achieve them sustainably.

Why? Because growth introduces complexity, costs increase before revenue catches up, profitability can dip temporarily, cash flow can become strained, and internal systems are tested.

Without a plan, these challenges can derail even high-performing companies.

One of the biggest mistakes is assuming that growth will automatically improve profitability. In reality, it often does the opposite, at least initially.

The Metric That Matters Most: Gross Margin

If there’s one number to focus on, it’s gross margin.

Gross margin is revenue minus non-labor costs of goods sold—the first dollar your business truly “owns” and can use internally.

Gross margin funds your operations, supports hiring and scaling, and determines long-term profitability.

Focusing solely on revenue can be misleading. Two companies may generate the same revenue but have vastly different margins, and therefore very different financial health.

While revenue-based benchmarks can be helpful, they don’t apply universally. That’s why you should shift the focus and evaluate performance as a percentage of gross margin, not revenue. This creates a level playing field, allowing for more accurate comparisons and smarter decisions.

Identify What’s Holding You Back

Challenges typically fall into two categories: external factors and internal factors.

External factors are things outside of your control, including economic conditions, market saturation, increased competition, and price sensitivity in customers.

Internal factors are things within your control, like pricing strategy, sales performance, operational efficiency, and resource allocation.

Understanding which category applies is critical, as the solutions are very different.

How to Navigate External Challenges

When the market isn’t growing, you can’t rely on demand to carry you. You have to create opportunity.

Here are two strategies highlighted in the episode:

1. Niche Down Further – Businesses seeing strong growth often operate as a “niche within a niche.” They serve a specific segment within a highly specialized area. This sharp focus allows them to stand out and command stronger demand.

2. Expand Your Offering or Reach – Growth may require stepping outside your current boundaries. Consider adding complementary products or services, expanding geographically, or exploring vertical integration (e.g., manufacturing what you currently source). The key is to rethink not just what you do, but what you could do with your existing capabilities.

The Power of Internal Optimization

If external changes aren’t the answer, the opportunity lies within.

Start by asking:

• Which products or services generate the highest margin?

• Which customers are the most profitable?

• Are your best resources being used effectively?

One common discovery: the largest customers are often the least profitable.

 Why? Due to heavy reliance on low-margin products, overuse of high-cost talent, and outdated pricing agreements. Revenue is vanity, while margin is reality.

Pricing: The Lever Too Many Businesses Ignore

If you haven’t adjusted pricing in years, you’re likely losing money.

Costs are rising across the board, labor is more expensive, and supply prices continue to increase. Failing to adjust pricing erodes margin over time, even if revenue grows.

The answer isn’t blanket increases. Instead, analyze pricing by product/service, strategically adjust pricing based on market demand, and align pricing with the value delivered.

Use Your Team More Strategically

Another growth blocker? Misallocated talent.

Businesses often assign high-cost employees to low-value tasks and over-service lower-margin clients. This results in reduced efficiency and limited growth capacity.

The solution lies in matching the right resource to the right task and freeing up top talent for high-margin work. This shift alone can unlock significant margin improvement.

Final Thoughts

Growth should be based on informed decision-making, not guesswork. To scale successfully, you need clear visibility into your numbers, a deep understanding of what drives margin, and a willingness to adapt and evolve.

Identify what’s holding you back, adjust your strategy accordingly, and focus relentlessly on margin, not just revenue.

If you’d like support in growing your business sustainably, contact us to get started.