Here’s a question I think more CEOs should ask: What if some of your growth is actually making your company less profitable?
We tend to assume more is better: more customers, SKUs, menu items, channels, and customization. But every addition adds a layer of operational cost that rarely sits beside the revenue that created it.
I call it the Complexity Tax™.
The $1 million customer that isn’t worth $1 million
Imagine a manufacturer has a customer generating $1 million in revenue requiring 12 unique SKUs, short production runs, custom packaging, and constant changeovers. Another customer generates $800,000 with 4 core products and predictable ordering.
Which customer is actually more valuable?
Most companies calculate gross margin, but far fewer calculate the economic cost of complexity required to generate that margin.Complexity hides in places the P&L doesn’t show directly: inventory, waste, changeovers, vendor management, training, labor, and management bandwidth.
Not all revenue deserves the same multiple
Consider one consumer products company that increased its SKU count by 66% over three years. Sales per SKU fell by 40% and margins declined 10%. After simplifying the portfolio by 25%, gross profit improved by 3%.
Furthermore, complexity suppresses enterprise value. Two companies generating $5M in EBITDA can command very different acquisition multiples if one requires 500 SKUs and the other generates the same profit from 100 SKUs.
The objective isn’t simplicity—it’s profitable complexity
The answer isn’t automatically cutting products or menu items. The question is: Which complexity creates more value than it costs?
Using SHG PerformANT AI™, we help leaders quantify their Complexity Tax and pinpoint exactly which SKUs, menu items, or accounts generate true economic profit.