Overview
This logistics and distribution company faced plummeting profits despite achieving significant revenue growth. With 34 customers, 22 employees, and $3M in annual revenue, the company expanded into two new service offerings in an attempt to combat commoditization of their core business. However, these expansions led to hidden costs and misaligned pricing strategies that eroded profitability.
Business Goals
- Reverse declining profitability by identifying and addressing inefficiencies.
- Realign pricing strategies to ensure profitability across all service offerings.
- Build a sustainable growth strategy focused on the most profitable customers
Key Results at a Glance (Powered by Profit Inc.)
- 65% of Customers: Identified as unprofitable.
- $155k in Lost Profits: Resulting from misaligned pricing and operational inefficiencies.
- $777k in Lost Value: Representing a 66% decline in company valuation.
- Profitability Doubled: Achieved within six months after implementing key recommendations.
Original State
- Top-Line Growth Focus: Revenue-based sales incentives drove unprofitable actions by sales reps, prioritizing volume over value.
- Hidden Costs: Incremental costs from new service offerings were buried in operational expenses, creating the illusion of profitability.
- Turnover Challenges: Lower-than-industry-average wages led to high employee turnover and costly mistakes due to inadequate training.
- Ad-Hoc Expansion: Lack of a financially informed plan resulted in misaligned service-level costs and operational inefficiencies.

Post-Engagement Success
- Disciplined Pricing: Implemented a detailed pricing configurator that accounted for all direct costs, ensuring profitability.
- Service Prioritization: Focused on the most profitable offerings, eliminating or adjusting unprofitable services.
- Employee Development: Introduced performance standards, increased wages to attract top talent, and launched a profit-sharing plan to incentivize all employees.
- Profitability Impact: Within six months, the company doubled its profitability and improved its valuation significantly.
Key Takeaway
Focusing on gross margins without allocating true costs can create a false sense of profitability. Managing by net profit margin reveals hidden inefficiencies and provides a clearer path to sustainable growth.
The Profit Optimization Program
Program Details:
Phase 1: Analysis
- Revealed that 65% of customers were unprofitable due to misaligned costs and pricing strategies.
- Highlighted that hidden costs buried in operational expenses led to a 66% loss in company value.
Phase 2: Implementation
- Created a disciplined pricing structure to align offerings with profitability goals.
- Designed a growth strategy focused on high-value customers and optimized service delivery.
- Developed employee training programs and introduced competitive compensation to improve retention and performance.
Process Highlights:
- Conducted a cost reallocation analysis to accurately assign expenses to specific service offerings.
- Shifted sales incentives from top-line growth to profit-focused outcomes.
- Provided leadership with a roadmap for sustained profitability through enhanced operational alignment.
Discover how a tailored profit optimization plan can transform your business’s bottom line.
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