How to Improve EBITDA in a Middle-Market Company

TL;DR

Improving EBITDA in middle-market companies isn’t about cutting costs. It’s about fixing three systems: Operations (how you deliver), Sales (how you sell), and Finance (how you measure). Most PE-backed companies I work with have 100-300% EBITDA improvement sitting in broken processes, misaligned pricing, and cash tied up in working capital. This guide shows you exactly where to look and what to fix first. The pattern I see across distribution, manufacturing, and home services: companies that instrument their operations, align pricing to value, and optimize working capital consistently outperform those that just “try harder.”

What is EBITDA and Why Does it Matter for Middle-Market Companies?

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is the metric PE firms use to value your company. A $5M EBITDA business at 6x multiple is worth $30M. Improve EBITDA to $10M and you’re now worth $60M. That’s why PE firms care about it.

But here’s what matters more: EBITDA is a proxy for cash generation. Not perfect (I prefer RNOA for understanding true profitability), but good enough for valuation conversations.

Most middle-market companies (call it $10M to $500M in revenue) have EBITDA margins between 8-15%. The companies I work with typically start around 10% and end up around 13-18% within 12-18 months. That’s 300-800 basis points of margin improvement, which at scale means millions in additional enterprise value.

The constraint isn’t lack of effort. It’s lack of systems. Your team is working hard but the business isn’t instrumented to show where profit leaks out.

What Are the Biggest EBITDA Levers in Middle-Market Companies?

I think about business as three machines: Operations, Sales, and Finance. Each machine has specific levers that directly impact EBITDA. Here’s what moves the needle:

Operations Machine (50% of EBITDA improvement potential):

• Labor productivity (revenue per FTE)
• Material waste and scrap rates
• Process cycle time and throughput
• Quality costs (rework, warranty, returns)
• Equipment utilization and uptime

Sales Machine (30% of potential):

• Price realization (actual vs. target pricing)
• Mix (high-margin vs. low-margin products/services)
• Customer profitability (kill the bottom 10-20%)
• Sales rep productivity (revenue per rep)
• Win rate on qualified opportunities

Finance Machine (20% of potential):

• Working capital efficiency (days in A/R, inventory, A/P)
• Cost allocation accuracy (are you pricing based on real costs?)
• Overhead absorption (how fixed costs spread across revenue)
• Payment terms and collection processes
• Vendor negotiation and payment timing

Most companies focus only on the Operations Machine (cut costs, work faster). That’s why they plateau. The real leverage is in Sales (charge more for the right things) and Finance (free up cash, allocate costs correctly).

See the full framework here.

How Do You Diagnose Where Your EBITDA is Leaking?

You can’t fix what you can’t measure. Here’s my diagnostic process:

Step 1: Run a Three Machines Assessment

Look at your business through three lenses simultaneously. Most teams look at operations OR sales OR finance. You need all three.

Start with this assessment. It’ll show you which machine is the biggest constraint.

Step 2: Instrument Your Operations

You need five metrics minimum:

• Revenue per FTE (total revenue / total headcount)
• On-time delivery rate (orders delivered on time / total orders)
• First-pass yield (units that pass quality first time / total units)
• Labor hours per unit of output (direct labor / units produced or jobs completed)
• Customer concentration (revenue from top 10 customers / total revenue)

If you don’t have these numbers by location, by product line, by customer segment, you’re flying blind.

Step 3: Analyze Customer and Product Profitability

Run a basic P&L by customer and by product. Use direct costs plus an allocation of overhead based on actual resource consumption (labor hours, material handling, customer service touches).

What you’ll find: 20% of customers drive 80% of profit. Another 20% destroy profit (they cost more to serve than they pay). The middle 60% is where you compete.

Step 4: Map Your Cash Conversion Cycle

Days Sales Outstanding (DSO) + Days Inventory Outstanding (DIO) - Days Payable Outstanding (DPO) = Cash Conversion Cycle.

Middle-market companies typically have 60-90 day cycles. Best-in-class is under 45 days. Every day you shave off frees up cash that falls straight to the bottom line (or funds growth without raising capital).

Step 5: Interview Your Frontline

Your operators, sales reps, and accounting team know where the problems are. They live with broken processes every day. Ask three questions:

1. What takes longer than it should?
2. What do we do twice that we should do once?
3. What information do you need but can’t get?

The answers will point you directly at your biggest opportunities.

What Are the Fastest Ways to Improve EBITDA in the First 90 Days?

Quick wins matter. They build momentum and fund longer-term improvements. Here’s what works:

Pricing Optimization (30-60 days to implement, 200-400 bps margin impact):

Most middle-market companies have pricing discipline problems, not pricing strategy problems. You have a price list but sales reps discount based on feel, not data.

Fix this:

1. Pull your last 12 months of transactions
2. Calculate actual price realization by customer, by product, by rep
3. Find the floor (worst pricing) and ceiling (best pricing) for each SKU
4. Set discount authority limits (reps can go to -5%, managers to -10%, anything more needs exec approval)
5. Instrument it (weekly report showing average discount by rep)

I’ve seen this alone add 200-400 basis points to margin. One distribution client went from 32% average discount to 18% in 6 months. That’s 14 points of margin that went straight to EBITDA.

Customer Pruning (60-90 days, 100-300 bps margin impact):

Fire your bottom 10-20% of customers by profitability. I know that feels scary. Do it anyway.

These customers are usually:

• Low volume, high touch (lots of customer service, special orders, rush deliveries)
• Demanding pricing concessions every time
• Slow to pay (killing your DSO)
• Preventing you from serving better customers (your team is too busy with nonsense)

Communicate the change professionally (price increase that makes them unprofitable to serve, or direct conversation about fit). Most will leave on their own. Some will accept price increases and become profitable.

Working Capital Optimization (90 days, significant cash impact):

Three levers here:

1. Accelerate collections: Move from 45 DSO to 35 DSO on $50M revenue frees up $1.4M in cash. That cash can pay down debt (reducing interest expense) or fund growth.

2. Reduce inventory: Most middle-market companies carry 90-120 days of inventory. Cut that to 60-75 days without impacting service levels by implementing ABC analysis and safety stock optimization. On $20M in inventory, that’s $5-10M in freed cash.

3. Extend payables: If you’re paying vendors in 15 days but they give you 30-day terms, you’re funding their working capital. Stretch to 30 days (don’t go past terms, that damages relationships). This is free cash.

Net-net: Working capital optimization can free up $5-15M in cash in a $50M revenue business. That cash either pays down debt (reducing interest expense, improving EBITDA) or funds growth without dilution.

How Do You Improve EBITDA Through Operational Excellence?

This is where most companies start, but they do it wrong. They cut headcount without fixing processes. That just makes everyone work harder without improving output.

Here’s the right way:

Step 1: Map Your Core Processes

Pick your highest-volume process (order fulfillment, job completion, production run, whatever drives revenue). Map it end-to-end.

Not a theoretical process map. Walk the floor with a stopwatch. Measure actual cycle time at each step. Track handoffs, wait times, rework loops.

You’re looking for:

• Non-value-added time (waiting, moving, searching for information)
• Variation (same process takes 2 hours sometimes, 6 hours other times)
• Rework and quality issues
• Bottlenecks (steps that constrain throughput)

Step 2: Eliminate Waste Before Adding People or Equipment

Most processes have 40-60% waste (non-value-added time). Cut that in half before you hire or buy equipment.

Common waste in middle-market companies:

• Information handoffs (sales to ops to accounting, each touching the same data)
• Quality inspection because you don’t trust the process upstream
• Expediting and firefighting (treating everything as urgent)
• Excess inventory because you don’t trust lead times
• Rework because specs weren’t clear the first time

Read more about operational thinking here.

Step 3: Standardize the Work

Once you’ve eliminated waste, document the current best practice. Make it the standard. Train everyone to the standard. Measure compliance.

This sounds basic but most middle-market companies don’t do it. Everyone has their own way of doing things. That creates variation, which creates quality problems, which creates cost.

Standardization means:

• Same process every time
• Same result every time
• Predictable labor hours per job
• Predictable quality outcomes
• Ability to onboard new employees faster (they follow the standard instead of learning tribal knowledge)

Step 4: Instrument and Improve Continuously

Put up a scoreboard. Track your key metrics daily or weekly:

• Units produced or jobs completed
• Labor hours per unit
• Quality (first-pass yield, defect rate, rework hours)
• On-time delivery
• Safety incidents

Review the metrics weekly with your team. When performance drops, investigate root cause. When performance improves, document what changed and make it the new standard.

This is how you get from 10% EBITDA margin to 15% over 12-18 months. Hundreds of small improvements compounding.

What Role Does Sales and Marketing Play in EBITDA Improvement?

Your sales team is probably your biggest EBITDA lever, but most companies treat them as a black box. “Just go sell more” isn’t a strategy.

Fix Your Pricing Discipline (covered above, but critical):

Sales reps optimize for closing deals, not maximizing profit. That’s not their fault. That’s how you’ve compensated them (commission on revenue, not margin).

Change the incentive. Pay commission on gross profit dollars, not revenue dollars. Watch what happens to average deal margins.

Improve Your Mix

Not all revenue is equal. A $1M customer at 20% margin contributes $200K to EBITDA. A $2M customer at 8% margin contributes $160K and probably creates more headaches.

Identify your high-margin products, services, customer segments. Then:

1. Train sales to lead with high-margin offerings
2. Incent them to sell more of the good stuff (higher commission rates on high-margin products)
3. Market specifically to customer segments that buy high-margin products
4. Prune low-margin work (or reprice it)

One manufacturing client shifted from 60/40 (commodity/specialty) mix to 40/60 over 18 months. Average margin went from 28% to 38%. Same revenue, way more profit.

Kill Low-Profit Customers (covered above, critical):

Your bottom 20% of customers by profit are costing you money. They’re also distracting your team from serving profitable customers well.

Run the analysis. Have the conversation. Make the change. Your EBITDA will thank you.

Increase Sales Rep Productivity

Most middle-market companies have huge variation in rep performance. Top performer does $3M at 35% margin. Bottom performer does $800K at 18% margin.

That’s not talent (well, maybe a little). That’s process and territory. Fix it:

1. Analyze what the top performers do differently (call patterns, qualification, product mix, negotiation)
2. Document it as a playbook
3. Train everyone else to the playbook
4. Measure and coach to compliance

You won’t turn everyone into an A player, but you’ll move the middle of the pack up significantly. That’s revenue growth and margin improvement without adding headcount.

How Do You Improve EBITDA Through Better Financial Management?

Finance isn’t just accounting. It’s how you allocate resources, measure performance, and make decisions.

Get Your Cost Allocation Right

Most middle-market companies use terrible cost allocation methods. They spread overhead evenly across all revenue, or allocate based on direct labor hours.

This means you’re undercosting complex, low-volume work and overcosting simple, high-volume work. You lose bids on the stuff you’re good at and win bids on the stuff that loses money.

Fix it with activity-based costing (or at least better allocation):

1. Identify your major cost pools (labor, materials, overhead)
2. Identify cost drivers (labor hours, machine hours, number of orders, number of SKUs)
3. Allocate costs based on consumption of the cost driver
4. Reprice based on actual costs

This will show you which customers and products are actually profitable. You’ll make different decisions about where to compete.

Optimize Working Capital (covered above, critical):

Free cash is EBITDA’s best friend. Every dollar you free up from working capital either:

• Pays down debt (reducing interest expense, improving EBITDA directly)
• Funds growth without raising capital (avoiding dilution)
• Builds a cushion for downturns (reducing risk)

Focus on DSO, DIO, and DPO. Small improvements compound into millions of dollars.

Negotiate Vendor Terms

Most middle-market companies have bad vendor relationships. They pay on time (or early) and never negotiate.

Your vendors want your business. Use that leverage:

1. Consolidate spend with fewer vendors (you become a bigger customer)
2. Negotiate extended terms (45 or 60 days instead of 30)
3. Negotiate volume discounts or rebates
4. Consider vendor-managed inventory for key materials

One distribution client saved $800K annually just by renegotiating their top 10 vendor agreements. That’s 80 bps of margin on $100M revenue. Straight to EBITDA.

Implement Rolling Forecasts

Annual budgets are useless by February. Implement rolling 12-month forecasts updated quarterly.

This forces you to think about:

• Where is demand heading? (so you can adjust capacity)
• Where are costs heading? (so you can adjust pricing)
• Where is cash heading? (so you can plan for growth or debt paydown)

Companies that forecast well make better decisions. Better decisions mean better EBITDA.

What Are the Common Mistakes Companies Make When Trying to Improve EBITDA?

I see the same mistakes repeatedly:

Mistake 1: Cutting Costs Without Fixing Processes

Layoffs feel decisive. But if you cut headcount without improving processes, you just make everyone else work harder. Quality drops, delivery suffers, customers leave, and you end up rehiring 6 months later.

Fix the process first. Then right-size headcount based on the improved process.

Mistake 2: Chasing Revenue Without Regard to Margin

Revenue growth is exciting. EBITDA growth is what matters. I’ve seen companies double revenue while EBITDA stayed flat or declined. They added low-margin work, which required more overhead, more working capital, and more complexity.

Grow profitably or don’t grow at all. It’s better to be a $50M company at 15% EBITDA ($7.5M) than a $100M company at 8% EBITDA ($8M). The first one is worth more and has way less stress.

Mistake 3: Not Instrumenting the Business

You can’t manage what you don’t measure. Most middle-market companies have financial statements (trailing indicators) but no operational metrics (leading indicators).

By the time your P&L shows a problem, it’s too late. You need weekly operational metrics that predict EBITDA performance: labor productivity, on-time delivery, quality, pricing realization, DSO.

Mistake 4: Optimizing One Machine While Ignoring the Others

Operations improves cycle time but Sales keeps selling unprofitable custom work. Sales improves win rate but Operations can’t deliver on time. Finance optimizes working capital but Operations and Sales aren’t aligned on inventory strategy.

All three machines have to work together. That’s the whole point of the framework.

Mistake 5: Implementing Too Many Initiatives at Once

I get it. You see 20 opportunities and want to fix them all. Don’t. Pick 3-5 high-impact, high-feasibility initiatives. Execute them well. Then pick the next 3-5.

Companies that try to do everything accomplish nothing. Focus matters.

How Long Does it Take to Improve EBITDA in a Middle-Market Company?

Quick wins: 90 days (pricing discipline, customer pruning, working capital optimization)

Meaningful improvement: 6-12 months (operational improvements, sales process changes, cost allocation fixes)

Sustained excellence: 12-24 months (cultural change, continuous improvement, full three-machine alignment)

The pattern I see: Companies that commit to the work show 200-400 bps of margin improvement in the first year, another 100-200 bps in year two. That’s 300-600 bps total, which on a $50M revenue company is $1.5M to $3M in additional EBITDA.

At a 6x multiple, that’s $9M to $18M in additional enterprise value. Not bad for fixing some processes and making better decisions.

FAQ: Common Questions About EBITDA Improvement

Q: What’s a realistic EBITDA margin target for a middle-market company?

Depends on industry. Distribution: 8-15%. Manufacturing: 10-20%. Home services: 12-18%. Software: 20-40%.

But comparison to industry benchmarks misses the point. Compare to your own potential. If you’re at 10% and best-in-class processes could get you to 16%, that’s your target. Forget what everyone else is doing.

Q: Should I focus on revenue growth or margin improvement?

Margin improvement first. Get to best-in-class margins in your existing business, then grow. Profitable companies can fund growth from cash flow. Unprofitable growth requires raising capital (expensive) or taking on debt (risky).

Exception: If you’re in a land-grab market where scale creates defensibility, grow fast and fix margins later. But that’s rare in middle-market companies.

Q: How do I know if I should cut costs or invest in growth?

Ask: Is the constraint internal (we can’t deliver on what we sell) or external (we can’t sell enough)? If internal, fix operations before growing. If external, invest in sales and marketing. Most middle-market companies have internal constraints disguised as sales problems.

Q: What if my team resists the changes needed to improve EBITDA?

Resistance usually means fear or lack of understanding. Communicate the why (we need to improve EBITDA to create value, secure jobs, fund growth). Show the data (here’s where we’re leaking profit). Involve them in the solution (you know the problems, help me fix them).

And be willing to make changes to the team. Some people won’t come along. That’s okay. Protect the many by dealing with the few.

Q: Can I improve EBITDA without expensive consultants or software?

Yes. Most improvements require better processes and decision-making, not technology. Excel, a stopwatch, and disciplined execution will get you 80% of the way there.

Invest in technology after you’ve fixed the process. Don’t automate broken processes.

Next Steps: Start Improving Your EBITDA Today

Here’s what to do next:

1. Assess your current state: Run this Three Machines Assessment to identify your biggest constraints

2. Pick your quick wins: Pricing discipline, customer pruning, or working capital optimization. Choose one, implement it in the next 90 days

3. Instrument your business: Set up weekly tracking for your top 5 operational and financial metrics

4. Build your improvement plan: Map your 6-month roadmap with specific initiatives, owners, and metrics

5. Get help if you need it: If you’re a PE firm or portfolio company CEO looking to accelerate EBITDA improvement, let’s talk. I’ve helped companies improve EBITDA by 100-300% by fixing their three machines: Operations, Sales, and Finance.

The companies that win in middle-market aren’t the ones working harder. They’re the ones working on the right things, in the right order, with the right measurement. That’s how you improve EBITDA. That’s how you create value.