Doubling Profitability At An Inc. 5000 IT Services Firm

The results of KGK’s work with an IT Reseller and Services company generating $45M in revenue per year.
IT Services

Client Situation and Reason for KGK

Background

Over a 15-year period, the company’s two owners grew the business from a small white-label PC builder into a considerable IT enterprise with 3 business units and $45M in

annual sales. While revenue growth was consistently impressive, and even recognized on the “Inc. 5000” on several occasions, profitability lagged behind top-line growth.

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Initial Insights

During a Complimentary 1-Day Assessment, KGK shared observations of where the company may have revenue and profit opportunities:

An excessively broad product and service portfolio may be delivering growth without attractive margin contribution.

Leadership with limited outside management experience / education may be holding back the organization

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Client Objectives

After continued discussion of the strategic, operational and cultural motivations behind their varied products and services, the owners engaged KGK to conduct an end-to-end

business review aimed at pinpointing their opportunities to increase profitability. Their prime objectives:


Reach $5M or 8-12% in net profit, up from their current $1.5M or 3-4% profit.


Invest in reoccurring growth that commands a higher valuation at the planned 3-5 year exit horizon.

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Our Work To Accelerate Value Creation

Engagement Summary

As an initial engagement, KGK’s end-to-end diagnostic identified over 100 potential revenue and profit leaks to evaluate. Evaluating these theories ultimately resulted our recommending focused action on 5 high-value opportunities (detailed below) and more than 2-dozen general recommendations for management to incorporate during the normal course of business. While some findings confirmed the client’s own suspicions, they agreed that eliminating alternate theories and determining the size of verified opportunities was valuable new information that clarified where to focus their attention.

The client requested KGK engage to assist with solution implementation and six months after project completion, the entire company exhibited greater focus and a profound $2M uptick in net profit run rate. The owners gained confidence they could step back from day-to-day decisions and rely on well-trained managers and KPIs that guide the business.

Furthermore, it put the business on track to achieving its objectives of producing $5M in annual EBITDA and gaining the interest of strategic buyers offering higher multiples.

As an initial engagement, KGK’s end-to-end diagnostic identified over 100 potential revenue and profit leaks to evaluate. Evaluating these theories ultimately resulted our recommending focused action on 5 high-value opportunities (detailed below) and more than 2-dozen general recommendations for management to incorporate during the normal course of business. While some findings confirmed the client’s own suspicions, they agreed that eliminating alternate theories and

determining the size of verified opportunities was valuable new information that clarified where to focus their attention.


The client requested KGK engage to assist with solution implementation and six months after project completion, the entire company exhibited greater focus and a profound $2M uptick in net profit run rate. The owners gained confidence they could step back from day-to-day decisions and rely on well-trained managers and KPIs that guide the business.


Furthermore, it put the business on track to achieving its objectives of producing $5M in annual EBITDA and gaining the interest of strategic buyers offering higher multiples.

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Select An Issue Below To Explore The Insight Provided, Action Taken, And Results Delivered.

Insight Delivered

Inconsistent Discounting Practices

Issue / Opportunity
Inconsistent discounting practices was leaving profit on the table
Substantiation

Analytics of pricing variances on 2 years sales history + sales rep / management interviews

Value Creation Options

Revised discounting policy and system-level controls

Potential

$500k net income / year

ROI Metrics
Increased margins without negatively affecting volume
Action and Results Delivered

7% increase in gross profit, contributing $300k in earnings

Decision

Develop a new discounting policy, new commission plan to incentivize adoption, and Netsuite updates to both enforce discount levels and reflect the updated incentives.

KGK’s Role

Design discounting policy, commission plan, and rollout communications; requirements and testing of Netsuite changes, results monitoring

Client Role

Change management, results monitoring

Results Delivered

7% increase in gross profit, mostly attributed to sales’ ability to price in a more calculated way. A related benefit was that sales found it faster to quote and required to increase their ability to justify pricing.

Develop a new discounting policy, new commission plan to incentivize adoption, and Netsuite updates to both enforce discount levels and reflect the updated incentives.

Insight Delivered

Vanilla Value Prop

Issue / Opportunity
The company’s value prop lacked claims that reflected understanding of the true needs they served, the competitive landscape, and the company values that compelled interest in doing business with the company.
Proof
Review of 1 year’s marketing collateral and the company’s accumulated competitive intel
Option(s)
Competitor and market research; strategic planning to identify a stronger “why” and to focus revenue efforts
Potential
Deemed essential; unable to quantify
ROI Metrics
Salesperson confidence in value prop; leads generated from prospecting efforts
Action and Results Delivered

Sales confidence in messaging increased from 65% to 90%

Decision
Competitive research on service offering differentiators, claims, mission/vision/values and market focus; define a messaging architecture that more closely aligns with customer needs, company values, overcomes the sameness in competitor messaging, and creates a stronger “why” for buying from them.
KGK’s Role
Competitive research and value prop design, market selection, change management and advisory
Client Role
Updated internal and external messaging to drive the desired behavior
Results Delivered
Intangible value; greater focus and profound uptick in sales confidence in messaging
Insight Delivered

Too Many Small Customers, Served The Same Way As Larger Customers

Issue / Opportunity
A philosophy that “all customers are good customers” led to a situation where 38% of customers totalled less than 1% of revenue.
Proof
Analytics on revenue/profit contribution by customer size, sales rep / management interviews, analysis of rep activity history, sales process educational materials, strategic account plans, company strategic plan, sales plan / forecast
Option(s)
Account tiering, sales and service standards by tier, revised account/territory assignments with small customers owned by inside sales, minimum order policy
Potential
$3.5-7MM+ in new revenue/year
ROI Metrics
Increase in sales rep capacity without negatively affecting company reputation amongst small customers
Action and Results Delivered

50% increase in rep capacity, 11% increase in average small customer revenue

Decision
Establish an inside sales role and quote process to enable small customer handoff to less experienced reps. Establish a new customer onboarding process to pre-qualify future Tier 1 and 2 Accounts. Redirect new field sales’ capacity to high-potential accounts.
KGK’s Role
Inside sales role, customer onboarding and quote process design; Netsuite solution requirements and solution validation; author sales team collaboration practices and guidelines; results monitoring
Client Role
Netsuite solution implementation and change management
Results Delivered
Field reps reported more than 25% of their workload was alleviated for redirection to larger opportunities. The new quote process replaced an error-prone customization process with reference solutions.
Insight Delivered

Unattended Large Accounts

Issue / Opportunity
As a consequence of “all customers are good customers” and a high volume of small accounts, large accounts or those with large account potential had become unattended.
Proof
Analytics on revenue/profit contribution by customer size, sales rep / management interviews, analysis of rep activity history, sales process educational materials, strategic account plans, company strategic plan, sales plan / forecast
Option(s)
Account tiering, differing sales and service standards by tier, revised account/territory assignments, increased adoption of activity tracking
Potential
$3-6MM+ new revenue/year
ROI Metrics
Planned/actual activity by account, pipeline creation by account, revenue
Action and Results Delivered

Almost 30%, or $20M, increase in overall revenue

Decision
Establish account tier criteria and assign all accounts, define sales activity guidelines by tier, and implement one way to do sales activity tracking
KGK’s Role
Account tier and activity guidelines design; advise on account reassignment; identify rep-centered solution options for activity tracking
Client Role
Account tier assignments, account reassignment to load balance, implementation of voice-to-text activity tracking solution
Results Delivered
Sales began using voice-to-text activity tracking to capture activity notes which were logged in Netsuite. Management reported dramatically increased visibility to rep activity and, as a result, more productive account/deal reviews. Best of all, reps were able to focus on cultivating larger opportunities and achieved 30% revenue growth, with commensurate increase in forward looking pipeline.
Insight Delivered

Immature Job Descriptions and Performance Management

Issue / Opportunity
Fluctuating role definitions and informal performance management practices was leading to conflict, lack of accountability and attrition.
Proof
50% of individual contributor roles and 80% of management roles did not have job descriptions or performance reviews, employee survey results, exit interview notes
Option(s)
A RACI matrix to organize roles and responsibilities, job descriptions, and a bonus-linked KPI for HR to enforce the company’s performance review process
Potential
Deemed essential; unable to quantify
ROI Metrics
% job descriptions completed, % of employees with performance reviews complete in last cycle, lower involuntary attrition, employees survey responses reflecting increased harmony, accountability and productivity
Action and Results Delivered

50% increase in rep capacity, 11% increase in average small customer revenue

Decision
Establish a RACI to clarify roles and responsibilities, a Knowledge Matrix for assigning work to the most knowledgeable team member, and a mandate for HR to own job description development and performance review compliance.
KGK’s Role
Project oversight and management; job description deliverable review; advise on performance evaluation and conflict resolution
Client Role
Gather internal input to establish baseline job descriptions; communicate and initiate performance review process.
Results Delivered
Employees reported a dramatic increase in understanding their roles and responsibilities, performance review compliance reached 100%, and 4 underperformers were placed on a PIP and ultimately exited (a rarity in the organization). Managers also reported the RACI clarified shared responsibilities in a way that eliminated failure points and increased overall productivity.

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