How to Improve Profit Margin in Manufacturing and What Is a Good Profit Margin in Manufacturing

10 Proven Ways to Increase Profit Margins in Manufacturing

Every manufacturer wants to make more profit, but not every business knows where to start. Rising material costs, energy bills, and wages make it harder each year to keep margins healthy.

Improving profit margin isn’t about cutting costs blindly or working longer hours. It’s about understanding where your money goes, tightening control over production, and making decisions that turn every hour and material into value.

The truth is, most manufacturers already have the capacity and opportunity to improve margins by 5–10% without increasing sales. The key is knowing where to look.

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What Is a Good Profit Margin in Manufacturing?

Before you improve margins, you need to know what “good” actually looks like.

According to the Office for National Statistics (ONS), the average net rate of return for UK manufacturing companies was around 7% in 2024.

Source: ONS – Profitability of UK companies, April to June 2024

This figure represents the average profit made after all costs, and it varies across different types of manufacturing businesses.

→ Specialist or precision engineering firms often achieve 10%–15% net profit margins due to higher skill levels, complex work, and added value.

→ High-volume, standardised production such as component assembly typically operates between 4%–8%, reflecting tighter competition and higher material dependency.

→ General fabrication and subcontract manufacturers usually sit in the 6%–10% range, depending on how efficiently they manage labour, materials, and overheads.

A strong indicator of performance is your gross margin that is the difference between sales and direct production costs.

If it’s below 25%, pricing or efficiency needs review.

Successful UK manufacturers aim for a gross margin of 30% or higher to comfortably cover overheads, reinvest in equipment, and build resilience against market volatility.

Know Your True Product Cost

Guessing your product cost is the fastest way to lose margin.

Real profit starts with accurate costing.

→ Include direct materials, labour, and machine time
→ Add energy usage and maintenance
→ Don’t forget overheads such as rent, supervision, and quality control

When you know the real cost of each product, you can price confidently and focus on what actually makes money.

Improve Factory Efficiency

Idle machines and waiting materials cost more than you think. Every delay reduces margin.

→ Measure and track production efficiency
→ Reduce setup and changeover times
→ Balance workloads across lines to avoid bottlenecks

Even small improvements in efficiency can translate into significant profit growth over time.

Manage Material Waste

Waste is one of the biggest silent margin killers.

Every piece of scrap represents lost profit.

→ Record material usage and scrap for every batch
→ Train operators on first-time quality
→ Recycle or reuse off-cuts
→ Work with suppliers to optimise material sizes

Reducing waste by even a few percentage points adds directly to your bottom line.

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Tighten Up Pricing Strategy

Many manufacturers price to win orders, not to make profit. That approach rarely leads to growth.

→ Review pricing regularly against actual costs
→ Analyse margin by product, not just overall results
→ Adjust or remove low-margin jobs that drain resources

Your pricing should reflect the value you provide, not the minimum you can charge.

Control Overheads

Overheads grow quietly and often go unnoticed.

Power, maintenance, insurance, and indirect labour can quickly erode profit.

→ Review overhead costs line by line every quarter
→ Renegotiate supplier contracts
→ Track energy and maintenance costs by department
→ Shift from fixed to flexible cost structures where possible

Keeping overheads under control ensures your gross margin turns into real profit.

Improve Planning and Scheduling

Poor planning leads to late jobs, overtime, and unnecessary stress.

All of that impact into margin.

→ Use visual boards or digital tools to track capacity
→ Monitor lead times and customer delivery promises
→ Align purchasing with production to avoid excess stock

Good scheduling keeps machines running, people productive, and cash flowing smoothly.

Monitor Key Performance Indicators

Profit improvement relies on visibility. If you don’t measure it, you can’t manage it.

→ Track gross margin, labour efficiency, and material variance
→ Review performance monthly against targets
→ Investigate any deviation quickly

Clear KPIs give you early warning when costs drift or efficiency drops, allowing faster action.

Manage Cash Flow

Strong profit means little if cash is tied up in stock or unpaid invoices.

Cash flow keeps your factory running and your suppliers paid.

→ Review debtors weekly
→ Enforce clear credit terms
→ Reduce work-in-progress and finished stock
→ Prepare rolling cash forecasts

Good cash control protects your profit from being eaten away by borrowing or late fees.

Involve and Train Your Team

People on the shop floor often know exactly where time and money are wasted. Their input is critical to sustaining improvements.

→ Hold short, regular meetings focused on improvement
→ Encourage staff to identify and fix small issues
→ Share key performance numbers so everyone sees the goal

When the whole team understands how profit is made, productivity naturally increases.

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Work With a Specialist Accountant

Improving margin isn’t just about operations, it’s also about strong financial control.

Most general accountants focus on compliance. A manufacturing accountant connects financial data with operational performance, helping you make informed decisions that protect and grow your margin.

At Skynet Accounting, we help manufacturers and engineers strengthen profitability through clear costing, production budgeting, and financial management systems that reveal exactly where profit is gained or lost.

www.skynetaccounting.co.uk