How to Optimize Operations for Profitability

A record-breaking revenue quarter... followed by tanking margins. We’ve seen this play out in fast-growing agencies... Everyone’s celebrating top-line growth, but internal financials tell a different story: - Scopes ballooned mid-project - Project managers didn’t track margin during delivery - Finance caught the issue weeks too late - Delivery teams focused on “getting it done” rather than “getting it done profitably” - Scope changes weren’t formally addressed with clients Here’s how we’d tackle it across our Barrel Holdings agencies: 1. First, map the breakdown. The problem isn’t just financial, it’s systemic. - No formal process to manage scope changes with clients - No real-time visibility into project margin - No clear margin targets - PMs weren’t trained or expected to manage profitability 2. Reground the team in core principles. - Profit must be designed, not hoped for - Margin goals need to be simple, visible, and shared - Every miss is a lesson - Communication is a performance tool, not a formality 3. Fix the operational gaps. - Tighten scoping with templates, risk buffers, and pre-mortems - Show margin vs. estimate in real time during delivery - Train PMs on margin literacy (make it part of the role) - Report margins monthly (or biweekly) at the leadership level 4. Reinforce with structure, rhythm, and feedback: - Assign PMs as margin owners - Review margins weekly alongside delivery updates - Surface margin metrics in dashboards - Celebrate margin wins not just project completion - Feed learnings into future scoping and pricing 5. Watch for ripple effects: - Stronger scope control might cause client friction; train AMs to frame it as professionalism - Teams may resist at first; confidence comes with repetition - Sales must evolve to take margin into account; no more “close the deal and figure it out later” Success looks like: - 85–90% of projects hitting margin goals within a quarter - PMs discussing margin in every project debrief - Change orders becoming standard practice, not a conflict - Clients staying satisfied even with firmer boundaries This isn’t about adding process for the sake of process but about shifting the culture. Margin becomes a shared, measurable, and learnable responsibility. Some of our agencies have undergone this transformation and others are in the process of going through it. It's never an immediate fix but a series of many tweaks & changes over time. == 🟢 Find this type of approach helpful? Check out AgencyHabits & sign up for our weekly newsletter. We also have an Agency Systems Playbook coming out soon for our subscribers.

What gets measured gets managed. If you don't know what to measure, you don't know what to manage. This is one of my trackers for managing operating and financial drivers, KPIs and metrics. Here's what it does: Let's assume you have a $50 million company that's realizing 28% gross margins (revenue less direct costs). This means you're making $14 million in gross profit. But you think you can do better. Examining the business, you observe 4 problems with direct costs: 1⃣ Problematic suppliers The companies is finding it difficult to manage uncertainty around the operations of its 20 overseas suppliers. The unreliable supply chain led to substantial delays and unexpected costs. To mitigate this, the company has decided to reduce the number of suppliers to 11 to ensure tighter control and more reliable operations. If the company can reduce complexity in its overseas supply chain, it may realize up to $353K in incremental profit. 2⃣ High variable costs / low contribution margin Inflation has led to skyrocketing material costs. Last-minute orders have led to higher material and freight costs. If the company can purchase in bulk and plan further in advance, variable costs can decline. This would lead to an estimated increase of contribution margin from 38% to 40% and incremental profit of $1.9 million. 3⃣ Manufacturing inefficiency Dated machinery and suboptimal scheduling has led to manufacturing inefficiency, worse that what it was in prior years. If the company can manage its manufacturing inefficiency from 13% to 8%, it can realize $616K in incremental profit. 4⃣ High rate of error The company has been dealing with quality control issues. Continuous complaints from customers about product quality have been traced back to inferior components. If the company can address its quality issues from 10% to 2%, it can realize $616K in incremental profit. --------------- Weighting the drivers and KPIs: Through an operational restructuring and process improvement, we believe we can bring an additional $3.525 million in profit (bringing margin up to 35% from 28%). But not all drivers are equal. This is how we weighted the impact of each initiative. 1⃣ Problematic suppliers - 10% 2⃣ High variable costs - 55% 3⃣ Manufacturing inefficiency - 17.5% 4⃣ High rate of error - 17.5% Therefore, improvements in direct variable costs are expected to bring the greatest benefit to profit, more than 3x as much as improving manufacturing inefficiency or errors and more than 5x as much as reducing the supplier base. What's this mean? If you're going to improve your company's financial position, you need to understand the strategic mapping and financial drivers. And you need to know which drivers move the needle the most. If you want to learn more about strategic financial mapping: https://lnkd.in/eRPRJf8N What questions do you have? #seidmanfinancial

A broken S&OP = Hurt profits & cash flow This infographic shows 7 steps to fix it: 1️⃣ Clarify Roles and Accountability ↳ Issue: everyone shows up, but no one truly “owns” forecasts, supply plans, or financial alignment ↳ Fix: assign clear responsibilities; who leads demand review, who owns supply decisions, and who ensures follow-through 2️⃣ Get the Data Right ↳ Issue: multiple spreadsheet versions, conflicting reports, and missing figures ↳ Fix: centralize the data; use a single “source of truth”; automate data refreshes 3️⃣ Align on a Single Forecast ↳ Issue: sales has one forecast, finance has another, and supply is forced to guess which one to follow ↳ Fix: drive to a consensus forecast that all functions agree upon; any changes outside this become an escalation, not the norm 4️⃣ Build a Structured Meeting Cadence ↳ Issue: ad-hoc calls or unproductive sessions with no outcomes ↳ Fix: implement a strict monthly S&OP cycle; keep agendas tight and focused on decisions 5️⃣ Align with P&L Objectives ↳ Issue: Demand and supply plans ignore profitability targets or budget constraints ↳ Fix: involve finance early. Include margin goals, cost targets, and cash flow considerations in the S&OP discussion 6️⃣ Set Clear KPIs and Action Items ↳ Issue: meetings end with broad statements; no concrete metrics or owners for the next steps ↳ Fix: track KPIs, assign them to the right stakeholder, and follow up at the next session 7️⃣ Foster Continuous Improvement ↳ Issue: not reflecting on the missed plans, like why forecasts failed or why inventory soared ↳ Fix: after each cycle, identify what worked, what didn’t, and where the process (or data) needs improvement Any others to add?