Recently I was reflecting on the importance of gross margins so I thought it could be instructive to share a personal story.
In 2007, ASG, Inc., an enterprise I launched and nurtured into a profitable and promising biotech and pharmaceutical resourcing firm, was approached by two strategic buyers. With revenues of $20 million, gross margins of 22 percent and $1.5 million in profits, ASG enjoyed seemingly healthy dynamics. We had a diversified client base, a stable headcount of professionals producing revenue, and a lean cost structure.
However, even though our market was robust, ASG’s gross margins had been dwindling. In the way of background, since 2001, most large pharmaceutical and biotech companies had been aggressively managing their costs by using a single outsourcing firm to set rates and manage the mark-up over billable headcount costs. So as a result, our margins declined from a high of 35 percent in 2000 to 22 percent in 2007. That is a whopping 13 percent decrease in margins during just seven years.
But what did it mean to us in real dollars? ASG enjoyed average annual revenue of $15 million during that time, but actually lost almost $2 million in whole dollar value. That loss meant $2 million less to spend on new personnel or on bonuses for key people, not to mention reinvesting opportunities in trending technologies and tools. Ultimately, we found ourselves in the unenviable position of doing more work but creating less income.
Through Legal-Metrix LLC, business advisory services are available that can guide you to maintain and even increase gross margins over time. A thorough review of company financials over the past three years is the first step, followed by an examination of the market and the competition. Then, you will need a discerning eye to look at your internal structure, organization, management, messaging, and compensation, to locate areas of improvement.egal
I have seen firsthand the effects of sustained, compromised gross margins, and hope to redirect your focus to ensure sustained success, or a well-conceived exit strategy.
