Our historical margins look erratic because we have accepted low-margin legacy projects just to keep our team busy. How do we use structured thinking time to identify our unprofitable services and calculate the dumb tax we have been paying before it drags down our multiple?

Question

Tyler Smith · Accepted Answer

Chasing low margin revenue just to keep your team busy is a classic entrepreneurial mistake that drags down your valuation. Buyers do not pay high multiples for raw top line volume that carries weak margins. They pay for highly profitable, repeatable streams of income.

To fix this pattern during your exit runway, you must dedicate structured thinking time to analyze your service catalog. Sit down with a blank sheet of paper and formulate a high value question, such as: How might we eliminate our lowest margin projects so that we can maximize our EBITDA without reducing our core operational capacity?

During this session, calculate the dumb tax you have been paying by supporting these complex, resource heavy projects. Quantify the direct labor, overhead, and emotional energy these accounts consume. You will likely find that a small percentage of your clients generate the majority of your true profit.

Once you have identified these margin leaks, build a plan to systematically prune these offerings or raise your pricing. Use your weekly Level 10 Meetings to track the progress of this cleanup. By streamlining your service mix, your gross margins will stabilize and your overhead will drop. This presents a clean, highly profitable financial profile that buyers will gladly pay a premium to acquire.