All four service lines return 38% margin. The allocation made them equal.

When overhead is spread across revenue, the margin ranking you get back is just your direct costs rearranged, and the line carrying the real cost stays invisible.

By Steve 5 min read
Abstract bridge artwork for All four service lines return 38% margin. The allocation made them equal.

There is a particular reading experience that should set off an alarm: a management pack showing four or five product lines whose net margins sit within two or three points of each other. It looks like evidence of a well-run, consistent business. More often it is evidence that the overhead recovery rate is doing all the work, and the numbers cannot tell you which line actually pays for the building. The arithmetic guarantees the answer If overheads are absorbed as a percentage of revenue, the most common default in small…

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Important: General information only. Rialto Bridge articles describe patterns and considerations that may apply to a business; they are not financial, legal, tax or accounting advice, and they take no account of your particular circumstances. Consider your own situation and seek advice from a qualified professional before acting.

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