In the Race for Profits, Does Size Matter?

Sometimes.  A look at IT companies in India showed that operating profits were clearly correlated  to size as measured by revenues.  Larger companies had higher margins and were more profitable on an absolute basis than mid-sized firms.  Why?  They enjoyed significantly higher pricing power, lower cost of sales (due to their scale) and similar employee costs. 

Does this spell doom for smaller companies?  Not if you change your game and run a different race.   First, focus – on an industry, a specific competency or expertise.  If you’re known as one of the few rather than one of the many, you’ll command higher prices for the services you offer.

Second, stop obsessing over top-line growth.  As I say time and again, it’s not what you make that matters, it’s what you keep.  Profits matter more than revenues.  Say it with me:  “Profits matter more than revenues.”

Turn away business that doesn’t meet a minimum gross margin hurdle.  If you can’t adjust your pricing or your costs to meet that hurdle, walk away.  Don’t tie up resources, including your own valuable management time, on clients that can’t or won’t pay what you deserve.

Read more: 

Breaking Out of the Middle