Pricing Adequacy Gap

Composite / composite / Immediate

What it detects

Revenue is growing, but gross margin is compressing at the same time: pricing has not kept pace with the cost structure, so each new dollar of revenue is worth less than the last.

When it fires

Revenue growth > [redacted]% + margin compressing > [redacted] pts (pricing not keeping pace with cost structure)

Why it matters

Growing revenue while margin compresses means pricing has not kept up with the cost of delivering the work, so each new dollar of revenue carries more cost and buys less profit than the last. This is dangerous precisely because the top line looks great, which masks the fact that the growth is quietly worth less over time. Left unaddressed, the business scales its cost structure faster than its profit, and the fix, repricing to the current cost base, only gets harder the longer the old pricing stays in place.

What it looks like in practice

Revenue is up [redacted]% year over year, but gross margin slipped from [redacted]% to [redacted]% over the same window. The growth is real, yet each additional dollar of revenue is carrying more delivery cost than the last, so the top-line gain is quietly buying less profit. Your pricing was set for the old cost structure and has not caught up.

Severity levels

• MEDIUM
• HIGH

Thresholds

Exact thresholds, formulas, and severity bands are omitted from this public view. The full methodology, with every figure, is available in the authenticated app.

How it connects

At current revenue, the [redacted]pt margin compression represents [redacted]/month ([redacted]/year) in foregone gross profit. Without a pricing intervention, margin continues compressing as project mix grows.

Why these together

Revenue growth on its own looks like health, and margin compression on its own looks like a cost problem. Together they say pricing has not kept pace with the cost structure, so each new dollar of revenue is worth less than the last. The composite fires when revenue is growing past its growth gate while gross margin has compressed by more than its compression gate over the window; it reads those two trends directly and attributes the pattern to the margin checks below when they are active.

Built from these checks

• Growth Destroying Margin: the same margin-while-growing pattern read on trend. When it is active it is listed as the composite's constituent, because it explains the compression the composite measures.
• Contribution Margin Collapse: the per-stream margin read. When it is active it is listed as a constituent, because a collapsing contribution margin on one revenue stream is the mechanism behind pricing that no longer covers cost.

Sources

• Eagle Rock CFO via Growth Destroying Margin
• SPI Research / Deltek via Growth Destroying Margin
• SPI Research full report via Sage via Growth Destroying Margin
• Datar, S.M. and Rajan, M.V. via Contribution Margin Collapse

SEE IT ON REAL NUMBERS

The exact thresholds, the formula, and your own figures are in the authenticated app. See it against a real, simulated dataset for Integra Executive Services, our public demo company, or connect your own QuickBooks Online account.