Twenty percent of our revenue still comes from low-margin legacy services that we keep only because of long-term relationships, but this drag is pulling down our overall multiple. How do we use our V/TO® and quarterly Rocks to offload or sunset these legacy accounts before we go to market without causing a panic that alerts our team?

Question

Tyler Smith · Accepted Answer

Maintaining low-margin legacy client accounts out of loyalty can severely drag down your overall valuation multiple. Buyers look at your blended margins, and a large block of low-margin revenue signals operational inefficiency and low pricing power.

To address this drag before going to market, use your V/TO® to redefine your target market and focus on your high-margin core. Identify which legacy accounts no longer fit your long-term profit goals.

Assign your leadership team a quarterly Rock to systematically renegotiate or transition these legacy accounts. You must either raise their pricing to match your target margins or transition them to other providers.

Track the impact of this transition on your weekly EOS® Scorecard. Monitor your overall gross margin percentage alongside any temporary revenue drop. In most cases, the resulting margin expansion will more than compensate for the slight drop in top-line revenue, leading to a higher overall multiple.

By proactively cleaning up your revenue mix before you launch a sale process, you present a clean, high-margin business. This operational discipline proves to buyers that your company has pricing power and premium value.