The short answer: EBITDA goes up when you sell more at better margins and spend less to deliver and run the business. In practice that comes down to seven levers: price, volume, mix, direct costs, overheads, productivity and focus.
Pick the one or two with the most room in your business, set a specific target, and measure it like for like. Price is usually the strongest lever and the one owners touch least.
What EBITDA is, and what it isn’t
EBITDA is earnings before interest, taxes, depreciation and amortization. It’s a rough measure of the profit your operations make before financing choices, tax and the accounting treatment of past investments.
The simplest way to calculate it: take operating profit (EBIT) and add back depreciation and amortization. Or start from net income and add back interest, taxes, depreciation and amortization.
Two things to keep in mind. EBITDA isn’t cash: it ignores what you spend on equipment, the cash tied up in stock and unpaid invoices, and your loan repayments. And it isn’t an official accounting measure: in the US it’s a non-GAAP figure, which is why public companies have to show how they got to it.
The seven levers
1. Price
Price is the strongest lever because every extra dollar of price drops straight to the bottom line: you deliver the same product at the same cost and keep the difference. A classic Harvard Business Review study of 2,463 companies found that a 1% price rise, with no loss of volume, lifted operating profit by 11.1% for the average company, against 3.3% for a 1% rise in volume. McKinsey’s 2003 update put the effect of a 1% price rise at 8%, more than three times that of a 1% rise in volume.
The same holds when you measure EBITDA directly. McKinsey’s 2019 analysis of about 1,000 midsize US public companies found that a 1% price improvement lifts EBITDA by about 6%, against 3.8% for a 1% cut in the cost of goods, 2.1% for 1% more volume and 1.1% for a 1% cut in fixed costs.
Places to look: list prices that haven’t moved in years, discounts handed out by habit, extras you give away for free, and customers who’d pay more for a faster or better service.
2. Volume
More customers, or more from each customer. Volume helps EBITDA only if the extra sales carry a decent margin and don’t cost too much to win, so watch your customer acquisition cost as you grow.
3. Mix
Not all revenue is equal. Shifting sales toward your higher-margin products, services and customers raises EBITDA without selling more overall. Find out which products and customers actually make money once their real costs are counted, then sell more of those and reprice or drop the rest.
4. Direct costs
The cost of making and delivering what you sell: materials, suppliers, freight, waste, rework and returns. Renegotiate the biggest supplier contracts, cut the reasons for rework, and stop paying for speed nobody asked for.
5. Overheads
Rent, admin, software subscriptions, insurance, management time. Go through every recurring cost line by line and ask whether you’d sign up for it again today. Most businesses find subscriptions and services nobody uses.
6. Productivity
Output per person and per hour. Better scheduling, fewer handovers, simpler processes and the right tools, including AI where it genuinely saves time, let the same team deliver more without adding cost.
7. Focus
Stop doing things that don’t pay: the side project that never took off, the customer segment that eats time, the product line nobody would miss. Focus frees up people and cash for the levers above.
A worked example: why price wins
Take a business with $5 million in revenue, direct costs of 60% of revenue, and $1.5 million in overheads. Its EBITDA is $500,000. Here’s what four separate moves do to it, each on its own and with everything else held still:
| Move | What changes | New EBITDA | Change |
|---|---|---|---|
| Raise prices 2% | Revenue up $100,000, costs unchanged | $600,000 | +20% |
| Sell 5% more | Revenue up $250,000, direct costs up $150,000 | $600,000 | +20% |
| Cut direct costs 2% | Direct costs down $60,000 | $560,000 | +12% |
| Cut overheads 5% | Overheads down $75,000 | $575,000 | +15% |
A 2% price rise does as much as selling 5% more, and selling more is usually far harder. That’s why pricing is often the first place we look. The catch is the assumption in the table: you have to know which customers and products can take a higher price without walking away.
What doesn’t count
Some moves make EBITDA look better without making the business better:
- Skipping maintenance or training. It flatters this year’s number and costs you later.
- Generous “adjustments”. Adjusted EBITDA adds back costs called one-off. When the same one-offs appear every year, they aren’t one-off.
- Accounting changes. Capitalizing costs you used to expense, or a change in how leases are accounted for, can lift EBITDA without changing anything about how the business performs.
- Squeezing suppliers or staff until they leave. The saving disappears the day they do.
If the gain wouldn’t survive a skeptical buyer looking at the books, it isn’t real.
How to measure the gain fairly
Before you change anything, agree how the result will be counted:
- The starting figure: EBITDA for a defined, normal period, not one flattered or hit by a one-off.
- The same rules before and after: the same accounting policies, the same definitions, and comparable periods.
- Who counts it: ideally your accountant, not the person who gets the credit.
- What’s excluded: agree up front how to treat things outside anyone’s control, such as an acquisition or a big one-off order.
This is exactly how we set up our own work. On performance engagements we agree a target such as “lift EBITDA by $100,000”, your accountant measures the result like for like, and we get paid only if it moves.
Where to start
- Write down your EBITDA for the last twelve months and the main lines that make it up.
- Estimate the room in each lever: how long since prices last went up, which products and customers lose money, which costs nobody has questioned.
- Pick one or two levers with the most room and the least risk, and set a specific target.
- Measure monthly, like for like, and drop what isn’t working.
Frequently asked questions
What is a good EBITDA margin?
It depends heavily on the industry. Software and asset-light services can run far higher margins than retail, distribution or construction. Compare yourself with your own sector rather than a single rule of thumb; NYU Stern professor Aswath Damodaran publishes margins by industry every year.
Is EBITDA the same as cash flow?
No. EBITDA leaves out spending on equipment, the cash tied up in stock and unpaid invoices, interest and tax. A business can grow EBITDA and still run short of cash.
What is the fastest way to increase EBITDA?
Usually price and overheads, because both show up in the next set of accounts. Volume and mix take longer, because they depend on winning and changing customers.
Can a consultant be paid on EBITDA improvement?
Yes. That’s how we work on performance engagements: we agree the target and how it’s measured before we start, and our fee is a share of the gain.
Sources
- U.S. Securities and Exchange Commission, Non-GAAP Financial Measures: Compliance and Disclosure Interpretations, questions 103.01 and 103.02.
- Michael V. Marn and Robert L. Rosiello, “Managing Price, Gaining Profit”, Harvard Business Review, September–October 1992.
- Michael V. Marn, Eric V. Roegner and Craig C. Zawada, “The power of pricing”, McKinsey Quarterly, 2003.
- Walter Baker, Manish Chopra, Alexandra Nee and Shivanand Sinha, “Pricing: The next frontier of value creation in private equity”, McKinsey on Investing, October 2019, exhibit 1.
- Aswath Damodaran, Operating and net margins by industry (US), NYU Stern, updated annually.