One of the best ways to eliminate low profit (the magic of the rule of 45)

There’s a magic number that we discovered that you should not exceed if you want to grow profitably.

It’s called the Rule of 45.

Here’s what it is: After researching a number of our clients with revenues greater than $5MM, we discovered that your topline year-over-year growth rate as a percentage, plus your earnings before interest, taxes, depreciation, and amortization (EBITDA) as a percentage of revenue, should not exceed 45 percent if you want to grow profitably.

The ideal mix between the two components of this principle works out to be a 30 percent year-over-year top line growth, and a 15 percent of profit growth, thus equaling the 45 percent rule.

It’s been our experience that firms that outrun this 45 percent target are likely not growing profitably.

They are probably borrowing from the past with cash on their balance sheet, or they’re stealing from the future by sourcing funds from a credit facility or an investor.

Neither situation is positive.

Taking cash off your books to fund profit robs the business of operating monies and borrowing to fuel growth only increases the need to grow faster to satisfy your creditors.

That’s when the crazy-train begins by leaving the station.

As a growth consultancy, you need someone in your corner that will encourage you through responsible, manageable, sustainable growth.

Trust us when we say you don’t want to build a business model, or dreams, that are rooted in hyper growth without a plan to eliminate low profitability.

Check out our podcast episode on the Rule of 45 here >>

Let’s talk and let us guide you.

Low profitability is just one example of the common struggles facing professional service firms. And we’ve helped them all get through it.

But it’s not only about the profitability for us. It’s about your success through an M&A engagement and growth strategy which were designed with you in mind.

To talk with us about how we can help you IT services business navigate the tricky waters of M&A experience, email here us to schedule some time with us.