Tackling market erosion: top tips for scaling firms

Tadhg Guiry explains how introducing real-time tagging taxonomies across revenue and expenses can help growing business get ahead of market erosion and maintain profitability

If scaling a business brings growth, why does it not always make a business stronger?

More customers equals more revenue and greater efficiency, right? Yet for many firms, the opposite is true: as they grow, their margins shrink.

This is margin erosion: the silent killer of scaling firms. Margin erosion often creeps in not during failure, but during periods of success.

The danger lies in its subtlety. Margin erosion rarely arrives with flashing warning signs.

It compounds quietly, quarter after quarter, until suddenly profitability is falling well below expectations.

Even when margin erosion is recognised, many business leaders dismiss it as an inevitable “tax” on growth.

For companies that want to keep growing, the challenge is to acknowledge margin erosion as an addressable problem and take action early, before it steadily undermines the very gains growth is meant to deliver.

Why lagging metrics fail

Most businesses only notice margin erosion when it’s too late. This is because they are over reliant on lagging indicators.

By the time those reports flag an issue, the root cause—be it discount creep, delivery inefficiencies or bloated headcount—is already embedded.

This is not a measurement issue for finance teams, but a visibility challenge for leadership.

During growth phases, optimism and momentum can disguise inefficiencies. Without early

signals, business leaders will likely only confront erosion once it has hardened into the firm’s cost structure.

The growth v efficiency fallacy

Too many business leaders think in binaries: “We’ll chase growth now and fix efficiency later”. The flaw in this logic is that inefficiency compounds.

Every hire, every contract, every delivery model becomes harder to change once it has scaled. Efficiency must be embedded in the growth playbook from the start, not patched in after the fact.

Growth without efficiency isn’t real growth. Efficiency without growth isn’t sustainable. Managing both growth and efficiency can enable businesses to scale profitably.

For accountants and advisors, this is where their expertise can extend beyond reporting.

By showing commercial leaders that margin discipline underpins enterprise valuations as much as growth, they can reframe efficiency not as restraint, but as the engine of sustainable growth.

Commercial tagging and taxonomy

To solve margin erosion during growth, businesses must apply an additional lens over and above those offered by traditional accounting. Isolated costs and line items on the profit and loss statement won’t tell the full story.

Work with your finance team by building real-time tagging taxonomies across revenue and expenses.

Instead of only grouping costs into standard reporting categories, costs can be linked directly to how the business generates growth—i.e. client acquisition, delivery models or delivery channels.

Develop an understanding of the output or contribution both single and grouped expenses should have, and judge them accordingly over a set time period.

With a centralised, real-time dataset, accountants can highlight leading indicators specific and relevant to their client’s business:

• Revenue and profitability per business line;
• Delivery margin trends; or
• Acquisition cost relative to lifetime value.

These insights can provide clarity on where growth is profitable and where it is quietly eroding margin.

This approach isn’t just about improved reporting; it can offer commercial foresight, giving businesses the clarity to act early and protect profitability while scaling.

The evolution of finance teams

As the closest partners to a client’s numbers, accountants are often in a unique position to translate financial clarity into commercial resilience. In practice, this can mean:

• Stress-testing growth plans with margin discipline in mind.
• Helping boards connect financial data to commercial scalability.
• Showing how disciplined growth protects valuation, not just short-term profitability.

Solvable efficiency problem

Margin erosion is often seen as a natural consequence of pursuing growth. This, however, is a myth: margin erosion is a solvable efficiency problem.

For accountants, helping clients confront margin erosion can help protect their profitability and also extend the accountant’s influence into the commercial space, positioning them as strategic partners in the boardroom.

Connecting financial clarity to commercial decision-making can help them enhance their advisory value, deepen client trust and ensure their expertise remains central as businesses scale.

Margin erosion may occur quietly, but treating it as inevitable is the mistake that allows it to persist.

Tadhg Guiry is Chief Executive of CSM Agency, the strategic growth consultancy