Doubling profitability at an Inc. 5000 IT Services firm

Over a 2-month period, we used the company’s data and interviews of their management team to conduct an end-to-end review of their business. We examined their strategic decisions and assumptions, competencies and capabilities, market and competitive position, the effectiveness of their sales and marketing efforts, pricing and commercial policies, profitability across types of customer and sales, their overall approach to performance management, the level of standardization within their operations, and their use of IT systems and data.

In total, we evaluated over 100 potential revenue and profit leaks, ultimately focusing on 5 high-value opportunities, 3 of which were quantifiable and forecasted to produce an additional $2M in profits each year:

• Broadly defined pricing guidelines cannot adequately direct highly situational pricing circumstances. While the company had pre-approved pricing levels, its enforcement was limited and our interviews uncovered little common understanding of when to discount and by how much. Defining how to price, and why, was calculated to deliver an additional 1% or $500k in annual net profit.
• Serving all customers in the same manner severely restricts the sales team’s capacity to generate revenue and profit. Except for the smallest of customers, field sales reps handled all customers and quotes. Unfortunately, over 1/3 of all customers accounted for less than 1% of revenue while at the same time sales reported insufficient time to cultivate customers with significant potential. Establishing account tiering and redirecting sales capacity to more productive accounts was calculated to deliver an additional $1.2M in gross profit.
• Despite the company’s breadth of products and services, cross-selling was limited, leaving significant revenue on the table. With fewer than half of their customers purchasing more than 1 product or service, the modest goal of cross-selling 1 more item to just 10% of their accounts would generate $350k in new gross profit per year.
• Strong execution without strategic clarity had yielded growth but in unsustainable fragments. The company’s business plans centered around the company’s sales goals, leading to haphazard market focus, ad-hoc addition of products and customers, lots of data but few KPIs, and limited concrete information about customers and competitors.
• A strong culture is not a substitute for training or policies. Every employee in the company rallied around the owners. Despite their loyalty and good intent, much of their management had been promoted into roles for which they lacked adequate experience and training. This resulted in key policies such as territory assignments being established through trial-and-error rather than through analysis of the connected business implications.