EBITDA Transformation Steps

A framework for transforming a high-growth business to focus on EBITDA profitability, based on real experience running an ecommerce business.

Step 1: Benchmark EBITDA Targets

• Research industry peers to understand margin potential
• Find the range between low end (10%) and high end (25%) performers
• Set realistic target around 60th percentile (e.g. 17-18% margin)
• Account for business model differences when setting targets

Step 2: Create EBITDA Budget

• Break down revenue into key spending categories:
  • Cost of goods sold
  • Operating expenses
  • Overhead
  • Marketing/advertising
  • Shipping/fulfillment
• Map current spend percentages for each category
• Identify where margin improvements need to come from
• Set specific cost reduction targets by department

Step 3: Communicate Plan Relentlessly

• Reset team priorities from growth to EBITDA
• Share current metrics and target state
• Put onus on department leaders to find savings
• Have leaders create tracking dashboards
• Establish regular reporting cadence

Step 4: Align Incentives

• Change bonus structures to focus on EBITDA vs revenue
• Remove bonus caps to incentivize overachievement
• Make EBITDA targets required for any bonus payout
• Consider increasing potential bonus for hitting targets

Step 5: Execute Regular Cost Reviews

• Do initial "spring cleaning" to find obvious cost savings
• Schedule monthly/quarterly deep cost reviews
• Keep digging deeper each review cycle
• Look at:
  • SaaS subscriptions
  • Agency relationships
  • Vendor contracts
  • Operating inefficiencies
• Even after initial cleanup, continue regular reviews to find new opportunities

The key is maintaining relentless focus on the transformation while giving teams clear targets and incentives to achieve them. Success requires both strategic planning and consistent execution over time.