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.

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.

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

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.

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.

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.

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