When we look at our financial targets in the V/TO 3-Year Picture, should we plan for massive EBITDA expansion through AI-driven margin gains, or will price deflation eat our profits before we get there?

Question

Tyler Smith · Accepted Answer

When projecting your 3-Year Picture on the V/TO, planning for unchecked margin expansion without accounting for market pricing pressure is a critical mistake. In almost every service and knowledge-work sector, the cost of generating initial deliverables is plunging toward zero. Economists Erik Brynjolfsson and Andrew McAfee have pointed out that rapid technological diffusion quickly transfers efficiency gains from producers to consumers. If you can produce a complex deliverable in ten percent of the time, your competitors will soon do the same and discount their fees to win market share.

Your 3-Year Picture must reflect this economic reality. Instead of assuming your current pricing holds while your labor cost collapses into pure profit, model two distinct forces: margin compression on commoditized outputs and margin expansion on high-judgment outcomes.

Build your future revenue and profit targets around three specific strategic adjustments:

- Shift your pricing model away from hourly billing or time-and-materials into value-based or outcome-based retainers that protect your margins as fulfillment speed increases.
- Reinvest a portion of your labor savings into proprietary data, deeper client integration, and specialized advisory services that off-the-shelf software cannot replicate.
- Run scenario simulations in your next strategic session to test what happens to your EBITDA if baseline market prices drop twenty to thirty percent over twenty-four months.

Define your 3-Year Picture by how defensible your margins are, not just how much cheap capacity AI creates. If your strategic advantage relies solely on lower production costs, you are planning for a race to the bottom.