Managing rising costs: A commercial review guide for SMEs

Over the past 12–18 months, costs across energy, labour, materials, and insurance have risen significantly for businesses of all sizes. While most SME owners are aware of the pressure these increases are placing on their operations, many are still absorbing higher costs without stepping back to carry out a structured review of where margin is being made. And where it is being lost.

A commercial review is a practical tool that can help business owners gain clarity on the true profitability of their products and services, make more informed decisions about pricing and resource allocation, and identify tangible opportunities to improve financial performance.

Rising input costs make it essential to regularly review and update your costing model.
Not all products or services contribute equally to profitability, some may be loss-making without the business being fully aware.
Improving profitability is not always about cutting costs; it is about directing effort and resource toward the areas that deliver the greatest return.
A structured review of your product and service mix can reveal significant opportunities to strengthen margin.
Clear visibility on performance at the product or service level supports better pricing, planning, and strategic decision-making.

What is a commercial review?

A commercial review is a structured assessment of a business's costs, pricing, and product or service mix, with the aim of understanding where profit is generated and where it may be eroded.

For many SMEs, day-to-day operational demands can make it difficult to maintain clear visibility on financial performance at a granular level. A commercial review creates space to examine that performance systematically, not just at a headline level, but across individual products, services, and customer relationships.

Why now? The case for acting on rising costs

The cumulative impact of cost increases across energy, labour, materials, and insurance over the past year or more has compressed margins for many businesses. The challenge is that these increases often occur gradually, making it easy to absorb them without triggering a formal review.

The risk of inaction is that pricing, costing, and resource allocation decisions continue to be made on the basis of assumptions that no longer reflect current reality. A structured review addresses this directly.

Updating your costing model

In many businesses, costings have not been updated to reflect rising input costs, wage increases, or changes in overheads. Without an accurate view of what it truly costs to produce or deliver a product or service, it is difficult to make informed decisions about pricing, margins, or where to focus effort.

An effective costing model should:

Reflect current input costs, including materials, energy, and any subcontracted services
Incorporate up-to-date wage costs and employment-related overheads
Allocate a fair share of fixed overheads across the product or service range
Be reviewed and updated on a regular basis, particularly when input costs change materially

A costing model that is kept current provides a reliable foundation for pricing decisions and commercial planning.

Reviewing your product and service mix

A review of the product or service mix will typically reveal a range of performance across the range. It is common to find:

Strong margin contributors

Products or services that consistently generate healthy returns

Break-even lines

Those that cover their costs but contribute little or nothing to overall profit

Loss-making products or services

Those that, when all costs are properly allocated, are generating a negative return

Loss-making lines do not simply reduce profit, they also absorb time, management capacity, and operational resource that could be directed elsewhere. In many cases, they remain in the range due to historical decisions, inertia, or assumptions about customer expectations that may not hold up on closer examination.

Rationalising the range is not about reducing the scale of the business. It is about ensuring that time, effort, and resource are focused on areas that generate return — while also identifying opportunities to grow higher-margin products or services, or introduce more commercially viable alternatives.

Key questions to consider

When carrying out a commercial review, the following questions can help structure the analysis:

Which products or services are delivering consistent margin?
Are there products or services that are underperforming or loss-making when all costs are properly allocated?
What is the cost, in financial terms and in management time, of continuing to support them?
Where should time and resources be redirected instead?
Which customers are generating healthy profit, and which are not?

These questions do not require complex analysis to begin with. In many cases, working through them with a clear and current costing model will surface the key issues quickly.

Consider a business that has seen its cost base increase materially over the past 18 months across wages, energy, and materials. The business has continued to operate its full range of products and services largely unchanged, with pricing adjusted modestly but not comprehensively reviewed.

On carrying out a commercial review:

A number of products at the lower end of the range are identified as loss-making once current input costs are properly allocated
These products are absorbing a disproportionate share of production and management time
A smaller number of higher-margin products are identified as having capacity to grow, but are not currently receiving priority attention or resource

The outcome of the review is not a decision to cut the business, but a reallocation of focus — stepping back from loss-making lines, directing resource toward higher-performing areas, and updating pricing across the range to reflect current costs.

The financial improvement comes not from a single large decision, but from a series of better-informed, smaller decisions made possible by having clear visibility on performance.

Common pitfalls to avoid

Not updating costings regularly.

Costings that reflect last year's input costs or wage rates will produce inaccurate margin calculations and may lead to mispriced products or services.

Retaining loss-making lines by default.

In many businesses, underperforming products or services remain in the range through inertia rather than a conscious commercial decision. A review creates the opportunity to reassess these on their merits.

Focusing exclusively on cost reduction.

Improving profitability is not always about reducing costs. In many cases, the greater opportunity lies in better directing existing resources toward the areas of the business that deliver the strongest return.

Assuming customer expectations require a full range.

It is worth testing assumptions about what customers actually value and require, rather than maintaining a broad range by default.

Frequently asked questions:

How often should a business review its costing model?

There is no single rule, but as a general principle, costings should be reviewed whenever there is a material change in input costs, such as wage increases, energy price changes, or shifts in material costs.

An annual review as a minimum is advisable, with more frequent updates where cost volatility is higher.

Does a commercial review mean I need to cut products or services?

Not necessarily. The purpose of a commercial review is to provide clarity, not to prescribe a particular outcome. In some cases, the review may lead to a decision to rationalise the range; in others, it may result in pricing adjustments, a shift in focus, or investment in higher-performing areas. The decision should follow from the analysis.

What is the difference between a loss-making product and one that simply has a lower margin?

A lower-margin product still contributes positively to covering overheads and generating profit, it is a matter of degree.

A loss-making product, when all costs are properly allocated, generates a negative contribution. The distinction matters because loss-making lines consume resource that could be directed elsewhere.

Can this type of review be carried out without specialist support?

A business owner with a clear view of their costs and a well-maintained costing model can carry out much of this analysis internally. However, professional support can add significant value, particularly in ensuring that costs are being allocated accurately, that the analysis is structured effectively, and that the findings are translated into clear commercial decisions.

Contact our team

Contact a member of our expert team and find out how we can support you.

Get in touch

Talk to Stephanie Walsh

Food Business Consultant087 606 1478 stephaniewalsh@ifac.ie Linkedin