Margin Enhancement

Why Margin Enhancement Matters

EBITDA growth drives disproportionate value creation in PE investments. A 1% improvement in EBITDA margin on $100M revenue company adds $1M to EBITDA, which at 8-10x multiples adds $8-10M to enterprise value. Margin expansion through commercial improvements is often faster and lower-risk than top-line growth.

Without systematic margin enhancement, companies leave millions in EBITDA on the table through undisciplined pricing, bloated cost structures, inefficient processes, and poor resource allocation. Cost-cutting alone is not sustainable-commercial margin improvement creates lasting value.

With systematic margin enhancement programs, portfolio companies capture pricing power, improve sales productivity, optimize cost-to-serve, enhance organizational efficiency, and deliver EBITDA improvements of 3-8 points within 12-18 months. Every point of margin improvement flows directly to enterprise value.

Key Components

Value-Based Pricing Strategies

Implement pricing based on value delivered, not costs incurred. Reduce discounting, capture price increases, optimize pricing architecture. Price is fastest path to margin improvement.

Sales Productivity Gains

Improve revenue per rep through better processes, territories, enablement, and tools. Same revenue with fewer salespeople or more revenue with same team-both improve margins.

Span of Control Optimization

Optimize manager-to-rep ratios, streamline approval processes, and eliminate organizational layers. Reduce management overhead while maintaining or improving team performance.

Cost-to-Serve Reduction

Analyze profitability by customer, product, and channel. Eliminate unprofitable business, optimize service models, and focus resources on high-margin opportunities.

Mix Optimization

Shift mix toward higher-margin products, services, customers, and channels. Strategic resource allocation drives margin improvement without volume sacrifice.

Operating Leverage

Build scalable processes and systems that allow revenue growth without proportional cost growth. Use technology and standardization to create operating leverage.

Key Takeaways

• Pricing improvements have 3-5x higher EBITDA impact than cost reductions-1% price increase = 10-15% EBITDA improvement
• Most companies have 20-30% of customers destroying value-exit or re-price unprofitable business systematically
• Sales productivity gains flow directly to margin-50% improvement in rep productivity enables 30-40% headcount reduction
• Technology investments should target activities with high cost-to-serve-automate low-value interactions before complex ones
• Margin enhancement requires balance between commercial improvements and cost discipline-avoid cost-cutting that damages growth