Cost increase

The 2026 fiscal year will test the true solvency and resilience of companies. Although Spanish GDP is projected to grow by around 2.3%, the real challenge lies in a subtle yet equally dangerous phenomenon: the possibility of sustaining sales, and even growing revenue, while profitability declines by year-end.

Many business owners are already feeling the pressure of rising costs in their day-to-day operations. Activity is not slowing down, the market remains active, and orders keep coming in, yet gross margin narrows every month. Costs weigh heavier on the income statement, negotiations with suppliers are becoming more complex, and every decision seems to require double the effort to achieve the same economic result as a few years ago.

A phrase we frequently hear from business owners is: “We are selling more, but at the end of the month my income statement does not reflect that effort.” This feeling  of selling and working more to earn less is something many are experiencing. At Maraz Corporate Finance, we describe this operational scenario as a “Sandwich Effect”: on one side, structural and regulatory costs push hard from below; on the other, competition and the market limit the ability to raise prices. In between, the company's margin becomes trapped and increasingly compressed.

In this blog post, we will explore which financial and strategic tools you can activate today to protect the margin without putting your market share at risk.

The “Sandwich Effect” in 2026: Why higher revenue may not imply higher profits

Mistake: Assuming inflation is no longer a problem

One of the most common mistakes in 2026 is believing that, because overall inflation (CPI) has moderated to around 2%, the pricing problem is solved. But who hasn’t felt that their business costs have risen significantly more than what the CPI figures show? For your company, the relevant indicator is never the general CPI seen in the news, but the inflation of your own corporate “shopping basket.” (Note: this can be calculated by tracking the increase of each factor and weighting them by their relative weight in the cost structure).

Companies do not only purchase products or raw materials; they also buy labor hours, face rising social security contributions, deal with volatile logistics costs, and must comply with new sustainability regulations. This company-specific cost basket continues to rise structurally, establishing a significantly higher operating cost floor.

This means that many decisions made with a “pre-crisis” mindset, maintaining old prices (or raising them timidly), absorbing cost overruns internally, and relying on higher sales volume to compensate, may, in 2026, lead to a progressive erosion of gross margin and a deterioration of cash flow.

If your business has a significant fixed-cost structure, the problem is amplified. A small drop in margin per unit can have a disproportionate impact on results. Understanding operating leverage and your company’s break-even point is not just financial theory; it is a practical tool to anticipate how your EBITDA could be “dragged down” if margins tighten.

Why margins deteriorate even when sales remain stable (or even grow)

From a business owner’s perspective, margin is often analyzed in aggregate: average margin per product family or the overall business margin at month-end. However, this “average” approach hides a reality: not all customers or transactions contribute the same real profit to your company.

In a context of rising costs like the current one, customers that are expensive to serve become true margin drains. Those who place small, frequent orders, demand constant urgency, have high return rates, or require intensive commercial attention are consuming resources (logistics, staff, and financing) that in 2026 are significantly more expensive.

In years of low costs and cheap capital, these inefficiencies could go unnoticed. But in periods of higher costs, they become critical for survival. The result of not analyzing this is that profitable customers end up subsidizing non-profitable ones without the business owner seeing it clearly in the aggregated income statement.

It is worth revisiting a concept that many companies only calculate “in passing”: the break-even point. As your cost base rises (labor, logistics, energy, compliance) your break-even point also rises. If your pricing policy does not keep pace, your company may be operating “above” the activity level, but “below” the actual profitability threshold.

Labor Cost as a driver of costs increases

If there is one line in the income statement that is straining most companies in the post-Covid era, it is undoubtedly personnel expenses. It is important to clarify a key financial nuance: when labor costs rise, it is not always because "employees are earning much more" in their net take-home pay. Often, costs increase because each effective hour of work costs the company more, even if the monthly salary received by employees has not increased substantially.

Several concurrent phenomena explain why labor cost has become a structural challenge:

Rising absenteeism post-COVID

Absenteeism rates have settled at levels higher than historical averages in many sectors following COVID-19. This has a direct and harmful effect on the margin because the cost of an individual does not disappear when they are absent, but their productivity drops to zero. Furthermore, covering absences implies additional costs: overtime, temporary staffing, recruitment agencies (ETTs), lower efficiency due to staff rotation, and increased operational errors. In sectors with continuous shifts, such as manufacturing, logistics, or retail, this is especially noticeable because the vacancy must be physically covered.

In financial terms, absenteeism not only inflates labor costs; it also inflates the cost of service, as it forces companies to operate with a “staffing cushion" or bear substitution overruns.

Fewer effective hours and increased leave

The shift toward shorter workweeks, combined with a higher utilization of maternity, paternity, and work-life balance leaves, reduces operational availability and raises the cost per productive hour. In practice, the cost does not appear simply as "higher wages," but as a need for reinforcements, shift reorganization, or loss of efficiency. If an employee earns the same but works fewer effective hours, the unit cost per hour automatically increases.

Delayed Collective Agreements and retroactive hikes

In many sectors, wage increases stipulated in collective agreements were frozen during the Covid years but have since been implemented aggressively, in some cases with retroactive adjustments. The result is a significant spike in the wage bill hitting all at once from 2022-2023 onwards, which many businesses had not correctly factored into their cost structure.

Shortage of skilled labor

The lack of qualified labor has become an additional challenge. When hiring technical, operational, or commercial profiles becomes difficult, market wages rise, turnover increases, and average efficiency drops. The company does not only pay more; it also loses time and productivity in selection, training, and the learning curve.

Fiscal Pressure on labor (Social Security)

Tax pressure on labor, exemplified by the Intergenerational Equity Mechanism (MEI), continues to increase, standing at around 0.90% of the contribution base, of which the company bears most (0.75%). This is a direct cost that generates no productive return but impacts cash flow every month.

If you combine higher absenteeism, fewer effective hours, and increased payroll and contribution costs, the real cost per productive hour skyrockets. This is the metric that truly attacks the margin. In 2026, labor cost is not managed simply by "controlling payroll," but by managing productivity, planning, coverage, and reflecting this new cost in pricing policy.

Margin Protection Levers for 2026

Cost-to-Serve (CTS): Key to knowing where you win and lose money

The question that separates companies that protect their margin from those that slowly lose it is: do you really know how much it costs you to serve each of your customers?

The Cost-to-Serve (CTS) goes far beyond the cost of the product or service itself. It includes the entire value chain: delivery logistics, warehouse handling time, transportation, administrative order management, commercial and technical support, the cost of returns, and the implicit financing within payment terms.

Two customers may purchase the same product at the same price, but if Customer A places a large monthly order (full truckload or container) and pays upfront, while Customer B places ten small, urgent orders and pays at 90 days, Customer B could be destroying value while Customer A is highly profitable.

When a business owner understands this concept and backs it with data, they usually discover three realities:

  • A small group of customers generates more than 100% of the real profit.
  • There is a “grey” area of customers who barely contribute.
  • And there is a segment of “toxic” customers who systematically destroy margin.

In 2026, ignoring the reality of CTS can have a very negative impact on margins. Acting on it, by reviewing logistics conditions, minimum order quantities, urgency surcharges, return penalties, or payment terms, is one of the fastest levers to recover profitability without needing to acquire new customers.

Furthermore, CTS allows for a game-changing decision: stop discussing price "in the abstract" and start discussing the correct price based on the actual cost to serve. When done correctly, the company improves its margins without breaking relationships, as it introduces a logic of efficiency and equity: those who demand more service pay more; those who are efficient benefit from better conditions.

The invisible Margin leak: Poorly managed discounts and conditions

Another major enemy of the margin in 2026 is not so much the official list price, but what happens in the “price waterfall” before the money reaches the pocket. This refers to accumulated discounts, unjustified free shipping, lax payment terms, automatic rebates, and included services that no one values but still cost money.

Many business owners believe they are selling at a certain price, when in reality, after applying all these layers of discounts and concessions, the net realized price is much lower. In an environment of rising costs, this gap is amplified and can turn an apparently profitable operation into a loss-making one.

The solution is not to become rigid or eliminate all commercial flexibility. The solution is to discipline the commercial policy with strictly financial criteria: every discount must have a clear cause and a measurable counterpart. Real volume discounts, not promised ones. Real early payment discounts, not "out of habit." Discounts for planning commitment, not for permanent urgencies. If there is no counterpart, it is not a sales tool: it is a direct margin gift that your company should not give.

A practical nuance: many companies lose margin not by "giving discounts," but by failing to control when they are applied, how they accumulate, and what conditions they hold. In 2026, the business owner needs clear rules and monthly control, as every deviation is multiplied by the rising cost base.

Pricing Strategy in 2026: Raising prices with method, not fear

Raising prices in 2026 without a clear strategy is risky, but not raising them when your cost structure demands it is a slow corporate suicide. The key is to do it methodically.

An effective approach is Value-Based Pricing: anchoring the price to the value you provide to the customer, not just your production costs. If your product or service helps your customer save costs, gain efficiency, or reduce their own risks, that value is tangible. In that case, your price is justified by the economic impact you generate in their business, shifting the conversation from “why is it so expensive?” to “how much am I saving thanks to you?”.

Furthermore, segmentation is vital. Do not treat all customers the same. Profitable customers must be protected; efficient customers can assume reasonable adjustments; and loss-making customers require a bold decision: either they accept new conditions that make them profitable, or perhaps it is time to let them go.

For a business owner, this is one of the most important decisions of 2026: understanding that pricing policy is not a "rate card," but a system of rules that protects margin and prioritizes healthy business.

When “firing” customers improves profit

Although it may be counterintuitive and uncomfortable, many business owners find that keeping certain customers in their portfolio is more expensive than losing them. Those customers who constantly push prices down, demand premium service at low-cost rates, return products constantly, and generate continuous administrative incidents are consuming your company's scarce resources.

“Firing” or inviting these customers to leave - if they do not accept the price increase - does not mean giving up on growth. It means freeing up operational and financial capacity to dedicate it to customers who do contribute margin and to the development of new profitable business. When the toxic customer portfolio is cleaned up, the effect is immediate: overall service improves, staff stress decreases, urgencies are reduced, and paradoxically, final productivity usually improves even if gross revenue slightly declines.

Additionally, this decision has a crucial effect in 2026: it reduces complexity. And reducing complexity is one of the most direct ways to gain margin when labor is more expensive, absenteeism is higher, and operations become harder to manage.

Contractual shielding: Price adjustment clauses

If your company operates with medium- to long-term supply or service contracts, 2026 demands strict contractual discipline. Signing fixed-price agreements a year in advance without review mechanisms is assuming an elevated risk.

Contracts must include indexation clauses that reflect the reality of cost increases. Referencing the general CPI is not enough; if your primary cost is labor, use labor or collective agreement cost indices; if it is energy or raw materials, use the corresponding sectoral indices. Anything not regulated in writing today will become a commercial conflict tomorrow. A well-drafted contract is not bureaucracy; it is an insurance policy for your gross margin. At Maraz, we see this clearly: when a contract includes an objective mechanism, renegotiations are simplified, tensions are reduced, and the company gains financial stability.

To reinforce this decision-making logic, it is also useful to work with a scenario analysis approach: the difference between "enduring" and "shielding" the margin usually lies in anticipating what happens if absenteeism rises, collective agreements increase, volume drops, or negotiations with key accounts tighten.

Review your costs, margins, and pricing strategy

The main business challenge in 2026 is not to sell for the sake of selling, but to sell smartly.  Protecting gross margin against rising costs requires active management: understanding down to the last cent where money is made (CTS), closing invisible discount leaks, applying pricing with methodology and value, and making bold decisions regarding customers and contracts. Companies that act proactively and professionalize their financial management will not only protect current profitability but also emerge stronger, with a real competitive advantage over competitors who continue to react late and poorly to rising costs.

At Maraz Corporate Finance, we help business owners and executive teams regain control of their margins with a practical, results-oriented external CFO service. We analyze your cost structure, customer portfolio, production costs, and commercial terms to quickly identify where profit is being lost and which corrective measures have real and immediate impact.

If 2026 is leaving you with the feeling of working more to earn less, it is time to review your strategy with data. Contact us, and let’s analyze together how to shield your margin.

Javier de Rojas Roca de Togores

Partner – Maraz Corporate Finance