Assessing cost optimization highlights the path toward 13% EBITDA improvement

Our Impact

Slowing growth and compressed valuations are forcing high-tech and software companies to pivot toward the profitability side of the Rule of 40—balancing current costs and margins with growth and value creation. That was the case when a software company’s management team, together with its private equity owners, wanted to improve profitability—with a goal of reaching $25 to $35 million EBITDA in several years. That’s when they called West Monroe. We recently helped a different portfolio company achieve a similar goal, so executives knew our approach was designed for impact and tangible results. 

Our analysis helped the client chart its course for double-digit margin improvement and highlighted how becoming digital—by automating key processes—could meet today’s efficiency goals. It also created a leaner, more competitive company for the future.  

The Full Story

The Challenge

Profitability lagged expectations despite this software company’s revenue growing at a 10% annual clip. With concerns about slowing market growth and compressed industry valuations, management and the investment team knew it was time to take action.   

High-tech and software companies have cost-optimization opportunities across the P&L, and executives wanted to ensure they were making the right moves for today’s environment while not compromising future growth potential. That called for an objective but comprehensive perspective—so they called West Monroe.   

An Undeniably Different Approach

Tuning a high-tech operating model for efficient growth requires fundamental changes beyond pausing hiring, reducing spend, and halting new initiatives. We’ve worked with hundreds of private equity-backed software companies of all sizes—so we understood the many levers for optimizing costs.  

That’s why a multidisciplinary perspective is at the center of our approach. We fielded a team with not only deep industry experience but also expertise in strategic sourcing, customer experience and customer success, and technology. This allowed us to study every facet of the client’s P&L statement, including cost of goods sold, sales and marketing, products and R&D, and general and administrative (G&A) functions—all in just three weeks. 

We then produced practical recommendations for improving profitability and achieving EBITDA targets. And because we emphasize the benefits—financial and otherwise—of being digital, our review also highlighted how the company could improve efficiency by automating certain processes.  

With our analysis, including estimates of the one-time implementation costs, the client could prioritize initiatives for achieving its profitability goals.

Real Results

Our rapid cost-optimization assessment showcased the client’s path to profitability through initiatives that will deliver cost savings between $17 million and $32 million—improving EBITDA margin by approximately 13% along the way.  

Because the company’s management team and investors could clearly see areas for opportunity, they were able to quickly agree on priorities for focus during 2023—and are now taking action.