Margin erosion

Margin erosion is the gradual, often unnoticed decline in gross margin on contracts or service delivery streams, typically caused by cost increases that are not fully passed through in tariffs. Typical drivers include collective labour agreement wage increases outpacing contractual indexation, higher purchase prices for materials, parts, or subcontractors, expired tariff steps, and added scope not anchored in the contract. In long-running contracts, the effect can consume tens of percent of the original margin over a few years before it becomes visible in the income statement. Line-level analysis per contract detects erosion before renegotiation becomes necessary. See also: Solution — Revenue leakage.