Unprofitable Growth Controls: 5 Checks Every Leader Must Run

Unprofitable growth controls: what leaders should fix next.

STABILIZE THE BUSINESS

Mustafa M A

10/27/20266 min read

Stacks of coins with an upward trending green arrow

Executive Summary

It is the year-end review at Khalid’s food distribution company in Riyadh. (Khalid and his business are illustrative.) The sales director opens with good news: sales are up 25%, from SAR 60 million to SAR 75 million, and the new Eastern Province route is full of cafés and restaurants.

Then the finance manager shows the next slide. Operating profit has fallen from SAR 3 million to under SAR 2 million. The overdraft is heavier than it has ever been.

Nobody in that room did anything reckless. Every deal was approved by someone sensible. That is why unprofitable growth controls matter: the damage rarely comes from one bad decision. It comes from many reasonable ones that nobody checked as a whole.

The short answer

What is happening: New business can add sales while losing money once delivery, payment terms and new fixed costs are counted.

Why it matters: Every extra riyal of that kind of sales drains profit and ties up cash the business then has to borrow.

What to do first: Report new business separately from the existing base, and check what it leaves after delivery and credit.

The Deals Looked Sensible One at a Time

Rewind twelve months. Khalid wanted growth beyond Riyadh. His team found it in the Eastern Province: about 140 cafés and restaurants, served from a small new depot in Dammam.

To win the accounts, sales offered 5% off the list price. The gross margin (what is left after paying for the goods themselves) fell from 20% to about 16% on those orders. On paper, that still looked healthy. Most competitors would have taken the same deal.

The cafés also asked for 90 days to pay, double the 45 days that Khalid’s existing customers get. Sales agreed, and in the region it did not look unusual. PwC’s 2025 Middle East Working Capital Study found that listed companies in the region took about 81 days on average to collect from customers. Across them, roughly US$54.7 billion of cash sat trapped in working capital.

Every decision passed the test the company actually used. Is the gross margin positive? Is the volume worth having? Both answers were yes.

The Money Leaked Where the Sales Report Never Looked

Cafés order small and often. Khalid’s trucks used to drop full pallets at large accounts. Now they were stopping at a café for six cartons.

Delivery and service costs on the new business reached about SAR 2.6 million a year. That is roughly 17 riyals for every 100 riyals of sales. On the existing business, the same cost is about 8.

The Dammam depot and its supervisor added SAR 0.9 million of fixed cost. The 90-day terms meant the new customers owed about SAR 3.7 million at any moment, and the new product range needed about SAR 1.5 million of extra stock. Agreed terms are only the starting point, too: in Atradius’s 2025 survey of UAE companies, more than half of all sales made on credit were paid late.

Here is what happened to 100 riyals of new café sales (illustrative figures):

1. Sales: 100 SAR

2. Gross profit: about 16

3. After delivery and service: about minus 1.5

4. After the Dammam depot: about minus 7.5

5. After the bank cost of carrying SAR 5.2 million of receivables and stock (assumed at 7% a year): about minus 10

Every 100 riyals of new sales cost Khalid about 10 riyals. The faster the route grew, the more it lost.

This is the classic shape of overtrading (growing faster than the business can fund or serve). The Northern Ireland government’s business advice service lists strong sales growth with thin margins, and a growing reliance on the overdraft, among its warning signs. Khalid had both.

Gross Profit Rose, Which Is Why Nobody Noticed

Total gross profit rose about 20%, from SAR 12 million to about SAR 14.4 million. The monthly report showed it climbing. The losses sat in delivery costs, depot rent and interest, all reported for the company as a whole rather than for the new business.

The profit drop alone could not prove the new route was the cause. Fuel costs, a slow quarter in Riyadh or a one-off write-off could have produced a similar dip. What settled it was a simple split. New business went on one side and the existing base on the other, each carrying its own delivery, credit and fixed costs.

Once the split was made, the existing business still earned its SAR 3 million. The new route was losing about SAR 1.1 million before financing, and about SAR 1.5 million after it.

Few companies have this view. BDO points out that genuine visibility into which customers and products make money is rare. It also notes that cost-to-serve analysis can be used to price new business before it is quoted. Cost-to-serve means what it really costs to deliver to, support and collect from a customer. For growth, that second point is the one that matters.

Five Unprofitable Growth Controls, One for Each Wrong Turn

Each control sits at a point where Khalid’s story could have gone differently.

1. A deal gate on what is left after serving the customer. Approve a discount only after someone shows the margin after delivery and service, not just the gross margin. Khalid’s 5% discount looked small. It removed a quarter of the gross profit on every order.

2. A cost-to-serve rule for every new channel. A new customer type gets its own delivery cost estimate before the first order, plus a minimum order or a delivery fee. A café is not a supermarket with smaller boxes.

3. A payment-terms gate. Finance approves any terms longer than standard, with the cash cost written next to the price. Moving from 45 to 90 days doubled the money the new customers held, an extra SAR 1.85 million or so.

4. A fixed-cost gate. Before adding a depot, a truck or a person, prove the new business makes money after delivery and before that new cost. If it does not, more volume cannot pay for the depot. It only makes the loss bigger.

5. A separate review for the first 13 weeks. Report new business apart from the base, with one named owner and one trigger. If it loses money after delivery for two months running, the team decides: fix, reprice or exit.

None of these slows down good growth. They slow down growth that cannot pay for itself.

What Khalid Decided, and Who Owned It

With the split on the table, the choice was clear but not easy. Khalid kept the route. He introduced a minimum order, with a delivery fee for small drops, and moved the cafés to two fixed delivery days a week. He also offered 60-day terms only to accounts ordering above the minimum. Some cafés left. The ones that stayed started paying for what it costs to serve them.

The sales director owned the new pricing. The finance manager owned the monthly split and the trigger. That mattered as much as the numbers, because a control without an owner is just a report nobody reads.

Earlier this year we looked at the warning signs that growth is becoming unhealthy [INTERNAL LINK: Week 11 article, “7 Warning Signs Your Business Growth Is Unhealthy”]. This article is the other half: the controls that stop it.

Where This Sits in the 3Ms Business Operating System

In the 3Ms Business Operating System, growth enters as a signal: sales rising faster than profit and cash. Cost-to-serve and margin protection show where it leaks. Cash and working capital tests show what the payment terms really cost, and the capacity check shows whether a new depot or truck is earned. The decision to grow, fix, reprice or exit goes to a named owner, and the result stays in the monthly review until it holds.

Questions Owners Ask

Should we stop giving discounts to win new customers? No. A discount is fine when the deal still makes money after delivery and credit. The control is about proving that before signing, not about banning discounts.

What if we cannot measure delivery cost per customer? Start rough. Count drops, average drop size and kilometres per route for one month. An estimate that is roughly right beats a gross margin that is precisely misleading.

How long should new business stay in its own report? At least 13 weeks, or until it has passed the trigger for two months in a row. After that it joins the base, with its terms and pricing fixed.

The Rule to Apply This Week

No new customer, channel or region is approved until someone can show what it leaves after delivery, payment terms and any new fixed cost. If nobody can show it, the deal is not ready.

If you want to see how your own growth stands up to that test, the 3Ms executive diagnostic starts with exactly this split.

External sources used

1. PwC Middle East, Middle East Working Capital Study 2025 — regional days to collect 81.1 (2024); about US$54.7bn trapped in working capital. https://www.pwc.com/m1/en/publications/middle-east-working-capital-study-2025.html

2. Atradius Payment Practices Barometer 2025, UAE, as reported by TradeArabia (5 Aug 2025) — 58% of credit sales paid late. https://www.tradearabia.com/News/435395/Firms-concerned-over-rising-bad-debts-in-UAE%2C-finds-survey

3. BDO, Improving Profitability Through Cost-to-Serve — limited visibility of customer profitability; cost-to-serve for quoting new business. https://www.bdo.com/improving-profitability-through-cost-to-serve

4. nibusinessinfo.co.uk (Northern Ireland government business advice), Avoid the problems of overtrading — warning signs incl. strong revenue growth with thin margins, reliance on overdraft. https://nibusinessinfo.co.uk/content/signs-your-business-overtrading