Shrinking in Order to Grow: A Case-study
A few years ago, I joined the advisory board (well, became the advisory board) of a 43-person consultancy struggling with margin and revenue growth. They’d achieved their growth through the good looks and charm of the founder but had never really hit decent margins (ie 20+% EBIT). They asked me to help them grow.
After my initial audit of the firm, I suggested that actually they needed to do the opposite. Their strategy, in the short term, needed to be to shrink. More specifically, to get smaller in order to grow. You, like the managing partner and owner, might ask a very reasonable question: ‘why?’.
In my initial audit of the firm, it was clear that they’d framed their major challenge as revenue growth. This had led them to pursue a number of projects, to build a number of services, and to work with a number of clients to maximise their revenue.
These tactics seemed profitable at first (decent project margin). But after adding the cost of sales, service development, rework, and extra work. Their net margin fluctuated between 6-12% over the past few years.
The founder wanted to blame everything except the firm’s strategy: COVID, the recession, the senior team, and even the consultants.
Granted, these factors may have worsened a bad situation, but they weren’t the main cause of the issues.
Every consulting firm faces similar challenges, but only those with the wrong strategy consistently experience low EBITDA in boutique firms.
Fortunately, the founder didn’t sack me on the spot. Over the last year, we focused on refining the firm’s core, profitable proposition, with valuable input from some friendly clients. This meant we stopped progressing certain clients, service lines, and projects, which led to letting some people go.
Instead of draining energy and margins on other activities, we focused on a core service. This service solved a critical problem and was sold directly to a key role on client boards.
We developed a clear value proposition and a more consistent methodology for delivering the work. The senior team worked hard to train the juniors. They ensured the juniors were confident in delivering a consistent, high-quality, and efficient service.
Once we resolved the method and capability issues, we switched to a fixed pricing model. This change meant any gains in efficiency directly translated into additional profit for the firm.
As the methods became more established and the team grew more competent, seniors were encouraged to delegate work to their team. This increased leverage ratios and project margins.
They also focused on building stronger client relationships, capturing testimonials and referrals, and improving the IP.
In the first financial year, we lost around 28% of revenue but EBIT increased to 18%. In the second year, EBIT was 21% and revenue growth was 8%. This year, the firm is on track for revenue growth of 12% and EBIT of 23%. We are currently building out a new service line, a strategic decision based on research, not just chasing revenue.
When revenue stalls or margins dip, consultancy leaders often rush to two quick decisions: adding new services to attract clients or cutting costs to boost short-term profit.
These may seem like reasonable solutions, especially in a market that often praises agility. However, creating new services as a growth solution is not always the answer—it can, in fact, be a costly diversion from a firm’s core strengths.
If you’re feeling the pressure to act, pause and assess whether new services will help or hinder your firm’s growth. This piece explores the risks of creating new services, the true costs often overlooked, and smarter alternatives for sustainable growth. These alternatives avoid drastic changes to your service offerings while fostering long-term success.
Revenue Potential is a Function of Profit. Not the Other Way Around.
The idea of launching a new service often arises from two common beliefs: first, that a new offering will drive additional revenue; second, that it will keep the firm competitive. However, it’s worth questioning this approach.
Are you selling to senior decision-makers with urgent, high-value needs? Are you clear on what your competitors are doing successfully that you aren’t? And are you able to set premium fees within your current market?
If the answers to these questions are uncertain, think critically about the profit potential of the service line. Many consultancies flourish by doubling down on core competencies rather than broadening their portfolio.
Highly successful firms are often known for a single specialised area in which they excel. Expanding into new services can dilute focus and confuse clients. It can also erode the brand credibility you’ve built.
Many consultancy leaders view adding a service as simple: a new page on the website, a few more sales calls, and some retraining. In reality, creating a service is much closer to launching a whole new business within your existing one. Without a solid foundation, the long-term costs of launching a new service can outweigh the revenue gains.
Firstly, there’s the time to maturity: most services take around two years to reach profitability, which is a significant period of resource drain if it’s not properly managed. Consultancy services are hands-on, requiring seasoned expertise, client feedback, and consistent market adjustments before they reach a reliable, profitable state.
In addition, each new service requires a unique value proposition that is both clear and compelling for a targeted audience. You may need to refine your messaging repeatedly as you test client responses. Each service also requires a clear methodology that underpins delivery, aligns with your firm’s standards, and ensures quality for every client. This typically includes building SOPs, training materials, and detailed delivery roadmaps.
Then there’s the client trust-building phase. Reputation, in consultancy, isn’t simply built on the number of services offered; it’s anchored in trust, referrals, and established track records. A client expecting high-quality expertise will be watching closely to see how well you deliver on your promises. And if processes aren’t clear from day one, the service can become more of a reputational risk than an asset.
The Trap of Cost-Cutting as a Quick Fix
Something that CEOs often do to increase profit instead of (or as well as) creating new service lines is cutting costs. But slashing budgets can also erode service quality, strain client relationships, and negatively affect team morale. For consultancies, strategic cost management is a far better approach than simply cutting costs across the board.
Start with efficiency improvements: automate repetitive tasks, refine workflows, and reduce administrative burdens to save without compromising service quality. When your team saves time, they can focus more on client-facing work and revenue-driving activities, instead of firefighting internal inefficiencies.
Another strategic choice is optimising staffing. Many consultancies improve profitability using a leverage model. Senior consultants focus on complex tasks, while juniors handle routine work. This frees up senior time for business development or strategic initiatives.
When done well, strategic cost management preserves core service quality and protects client satisfaction. This helps the firm stay competitive, even when resources are stretched.
Exploring Smarter Alternatives for Revenue Growth
Instead of reacting with new services or sweeping cost cuts, consultancy firms can explore alternatives that yield growth by strengthening their core.
One option is to optimise existing services. Ask yourself: Are there processes that could be streamlined or automated? Could team roles be structured more effectively to ensure each project runs smoothly?
For example, some firms succeed by investing in software to automate client communications or scheduling, freeing consultant time. Case studies from these consultancies show higher client retention, stronger word-of-mouth referrals, and ultimately, more organic growth.
Another approach is to increase leverage. By structuring your team with an effective ratio of junior to senior consultants, you can boost efficiency and profitability without the need for more services. Senior consultants oversee and direct projects, while juniors perform day-to-day tasks.
This “pyramid” structure allows firms to deliver more work at a lower cost and ensures senior consultants are freed up for high-impact work such as business development and client relationship management.
Rather than adding new services, consider repackaging existing services to cater to different client segments. If you have a high-value service that currently only attracts larger clients, for instance, creating a simplified version might appeal to smaller clients or start-ups. Repurposing and repackaging your services in this way allows you to widen your market without significant investment in development or training.
Maximising Revenue From Client Relationships
Your current clients represent one of the most powerful growth levers you have. Retaining and deepening relationships with existing clients often yields more value than adding new services or attracting new clients.
Prioritise client retention and expansion by focusing on service quality and client satisfaction. When clients feel their needs are being consistently met, they are more likely to consider additional services or refer your firm to others. A loyal client base reduces the pressure to expand into untested areas and provides a solid foundation for steady growth.
Another valuable strategy is to set up a Client Advisory Board (CAB), which brings clients into the decision-making process for service improvements and market direction. CABs offer a structured way to gain feedback on your existing services, identify gaps, and co-create solutions directly aligned with client needs.
A CAB also deepens relationships, strengthens loyalty, and can offer insights that help you evolve your core services in ways that directly support client needs and satisfaction.
Practical Steps to Strengthen Existing Services
Strengthening your existing services is not simply a matter of maintaining the status quo. There are several ways to ensure that your services not only remain competitive but also generate greater value over time.
Firstly, systematise and automate wherever possible. Document and automate repetitive tasks such as meeting scheduling, client communications, and reporting, so that consultants can focus on high-impact activities. This can help streamline your operations, enhance efficiency, and allow your team more time to innovate and improve service delivery.
Creating Standard Operating Procedures (SOPs) for each stage of the client engagement process is also essential. SOPs allow for consistent quality, even as your team grows. They serve as valuable training tools for new hires and ensure everyone understands the standards of excellence that clients expect.
Finally, remember the importance of effective delegation. By assigning routine tasks to junior staff and empowering them to take responsibility, you free up senior team members to focus on business development, strategy, and client engagement. In consultancies, delegation isn’t simply about getting work done—it’s a strategic approach that can improve both team morale and revenue.
The Long Game: Patience as a Competitive Advantage
While new services or cost-cutting may provide a short-term boost, sustainable growth requires a longer-term perspective. Patience is often one of the most valuable assets in a consultancy leader’s toolkit.
- Prioritise high-impact, high-margin services that you know perform well in the market. By focusing on these proven revenue drivers, you build a reputation for reliability and quality that will help secure a more stable client base and open up new opportunities through referrals and word-of-mouth.
- Adopting a patient approach to growth—one that values reputation and quality over rapid expansion—sets you apart from competitors who may be rushing into new services. This “long game” builds both client trust and team confidence, creating a more resilient firm that’s ready for future challenges and opportunities.
Conclusion
When faced with growth challenges, the instinct to create new services or cut costs may be strong, but it’s rarely the best route to sustainable success. Maximising the value of your existing services, deepening client relationships, and strategically managing costs are often far more effective ways to drive meaningful growth.
So, before launching into something new, take a moment to step back and assess: is it time to expand, or is there more value to unlock in what you already do? By making choices grounded in long-term value creation, your consultancy will be better positioned for sustainable, profitable growth.
