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A founder inherited a firm running gross margin in the low 20s. Before chasing a single new client, one number got fixed first.
This founder took over a professional services firm as a 50 percent partner and CEO. On day one the business was essentially a body shop: one W-2 employee and a rotating bench of 1099 contractors, selling their hours. Gross margin sat in the mid to low 20s.
Growth was the obvious temptation. The founder resisted it. In year one the entire focus was margin discipline, not the top line. Only after the margin was healthy did the firm turn to revenue, which then grew 40 percent the following year.
“So we effectively doubled our gross margin in that first year. Second year, we then, after we fixed margin discipline, we focused on growing revenue. And year over year, we grew revenue by 40%.”
The order is the lesson. Fix the economics of the work first, then pour growth on top of a model that actually keeps money.
Why it matters to you
Gross margin in the low 20s means you are selling labor at close to cost and calling it a business. Every new client at that margin adds work without adding much money, and growth just scales the strain. Doubling gross margin before scaling means every future dollar of revenue lands on a model that keeps a real share of it. That is the difference between growing bigger and growing richer, and it is the number a buyer reads first.
Your one thing
Pull your gross margin for the last twelve months. If it starts with a 2 or a 3, fixing that number is worth more than any new client you could sign this quarter.
Collective 54 is where boutique service firm founders go to make more money, scale with less friction, and build a firm worth buying.
See if it’s a fit →