Want Higher Margins? We Can Help

BY IT GLUE | November 19, 2014

Are you focused on revenue, or are you focused on actually making money? If there isn’t anything left on the bottom line at the end of the month, quarter or year, why be in business at all? Let’s look at a few sample IT companies, with SG&A consistent to illustrate my point:

  • Company A “Inefficient”
    • 40 employees
    • $5.0M revenue
    • 40% gross margin
    • 35% SG&A
    • 5% EBITDA or $250,000
  • Company B “Emerging”
    • 25 employees
    • $2.5M Revenue
    • 50% gross margin
    • 35% SG&A
    • 15% EBITDA or $375,000
  • Company C “Optimized”
    • 10 employees
    • $1.5M revenue
    • 60% gross margin
    • 35% SG&A
    • 25% EBITDA or $375,000

Which company would you rather manage? Here’s a secret: if you can’t make money at 10 employees, you won’t be making money at 50 or 500 employees. Why deal with the headaches of a 40-person company at low margin when you can run a nice, tight, 10-person organization with huge profits. When you can hit the margins with a smaller organization, you have the foundation to scale and maintain those margins at a larger size; just imagine Company A with 25% EBITDA. Although some things come with scale, the number of employees or customers, topline revenue, and even monthly recurring revenue (MRR) are not the primary beacons for success. To drive higher margins in your IT business, here are the secret ingredients:

  • Good people – find and retain the absolute best people you can find, ideally people who believe in your vision and like to work hard (and make sure you pay them properly)
  • Good customers – figure out your “sandbox” and stick to it, make sure you can charge a premium for a high quality service. Remember, you need to pay for all those great people!
  • Good process – embrace LEAN business practices and drive standardization not of both the technology stack and processes

While we can’t help you with the first two items, we can be a key enabler of success around process and efficiency. Our platform can help you develop standardized processes and documentation so that you can hire staff more quickly, and front-load your service desk with lower cost resources. The end result of this is higher margins for you, and better outcomes for your customers. Sound interesting? Request a demo today and learn how.

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