Bill Canady explains why firing employees too quickly backfires: companies often rehire them within a year at higher cost, destroying profit margins. A $180 million business with a 2.25 margin ratio loses $840k in margin by cutting just $7 million in telecom revenue, wiping out gains from price increases.
Did the work go away first or did the people go away first? If the people went first, you're gonna hire them back inside of a year at a premium, and that's gonna make you feel pretty bad. All right. So here's an example. Back to our $180 million of business at 2.25. Here's the real path. Price. A corridor cleanup delivers 1.5 points of realized price. On $180 million, that's $2.7 million. Essentially all of it straight to material margin. We love that. $63 million goes to $65.7 million. Ratio 2.35. Now mixed, retire $7 million of tel revenue running 12% material margin. That costs you $840,000 of margin. And if you stop there, the ratio goes down.
