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Profit levers: what price, fixed costs and receivables give

EBITDA after four levers

3,1 PLN m

Price effect (after losing 30 % of it to volume)
0,5 PLN m
Fixed-cost effect
0,5 PLN m
New EBITDA margin
13 %
Cash released from working capital
1,1 PLN m

A result increase above a quarter of today’s EBITDA without sales growth – that usually means the price list has not been touched in years. Start with price: it works fastest and needs no investment.

How much EBITDA and cash can be squeezed without growing sales? Four levers computed separately: a price increase, fixed-cost cuts, faster receivables and faster inventory turns. The first two improve the result, the last two – cash. Not the same thing.

An indicative tool: the result is an order of magnitude on your assumptions, not a valuation or tax, legal or investment advice. Data entered into the form is never sent or stored anywhere.

How it is computed

  1. 1Price – with part of the effect lostAn increase goes fully to the result only if volume does not change. I assume 30 % of the effect is lost (some clients buy less or leave) – more prudent and closer to practice than “3 % on price = 3 % of revenue to the result”.
  2. 2Fixed costs – 45 % of costsTotal costs are revenue minus EBITDA; I take fixed costs as 45 % of them (typical for services and light manufacturing; less in trading, more in professional services). The percentage reduction applies to that part.
  3. 3Cash from working capitalEvery day of faster collection frees one 365th of revenue. Inventory days count with a weight of 0.6, because inventory is at purchase cost, not sales price. This cash is one-off – once released it does not recur yearly, but it does not vanish either.

Break-even point and margin of safety

Frequently asked questions

Why does price have the biggest leverage?

Because it acts on the whole revenue, not on one cost line, and needs no investment. At a 10 % EBITDA margin a 1 % price increase (with no volume loss) lifts the result by 10 %. To get the same through cost cuts you would have to trim 1.1 % of all costs – which usually hurts more.

How do I know how many receivable days I can cut?

Compare actual collection (receivable days from the balance sheet and revenue) with the terms on your invoices. The difference is delay – that is the real room. Shortening contractual terms is a separate decision, usually costing a discount or a client.

Can all four levers be pulled at once?

You can, but the effects do not add linearly – a price increase together with cuts in customer service raises churn. In practice you start with price and receivables (fast, cheap), then fixed costs (a quarter), inventory last (it needs changes in purchasing).

I wrote about this on LinkedIn

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    Read on LinkedIn (linkedin.com)

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