The increase in operating profit of CZK 46 million over 18 months was not driven by improvements in production. It came from taking control of the company’s own market, customer relationships and margins.
Summer 2024: At first glance, this was a successful manufacturing business. It employed more than 170 people, generated revenue of around CZK 420 million and exported most of its output. Production had been running at virtually full capacity for years. Yet the company had stagnated financially for five years. Its annual operating profit was approximately CZK 6 million. On revenue of CZK 420 million, this represented an operating margin of just 1.4%. Note: operating margin is calculated as operating profit divided by revenue, multiplied by 100.
For every CZK 100 of revenue, the company retained approximately CZK 1.40 after paying its operating expenses. More than 80% of its output was sold under the private labels of a few major international customers. The company employed the workforce, invested in production technology, financed inventory and bore almost all the operational risk.
The crucial issue was that someone else controlled the final product, the end customer and the price. Its customers were also its competitors.
Production was at full capacity with almost no room for further growth
The owner felt that the company was heading into a dead end. Energy, raw material and labour costs were rising. The business had already implemented most of the conventional cost-saving measures that made economic sense. Further cuts would begin to jeopardise quality, employees or the ability to deliver to customers. Nor could the company simply produce more. Its production capacity had been virtually fully utilised for years. Further revenue growth would require substantial investment in new technology or an expansion of the plant. At an operating margin of 1.4%, however, such an investment would not solve the problem. It would merely increase production volumes within a business model that had already reached its economic limits.
The owner therefore found himself asking an uncomfortable question more and more often: What happens if one of our largest customers reduces its orders or moves production elsewhere? On the surface, major customers appeared to provide stability. In reality, the company’s survival depended on them.
Management knew where the company needed to go but not how to get there safely
Management was neither unaware nor incapable. It understood that further cost reductions would not provide a long-term solution. The company needed its own products, direct customer relationships, new export markets and greater added value. Yet there was a substantial gap between recognising this need and putting it into practice. The business lacked sufficient up-to-date information on international markets. It did not know which countries and segments offered a realistic opportunity for success. It had no product strategy, international sales network or people experienced in building a direct export channel.
There was also another significant risk. Its largest customers sold the company’s products under their own brands. If they felt that the manufacturer was entering their markets or approaching their customers, they could immediately cut their orders. The company therefore faced a paradox: it knew it needed its own sales operation, but feared that taking the first step could put its existing business at risk.
The real problem was not a shortage of salespeople
Hiring more salespeople would not, in itself, have helped. Where would the company send them? With which products? Against which competitors? At what prices? How would it meet local regulatory requirements? How would it handle transport, installation, commissioning, servicing and warranty claims? How would it prevent conflicts with existing customers? And how would it finance the transition while protecting existing revenue and investing in a new business model at the same time?
Building an international sales operation involves much more than approaching prospects. It requires a complete system to acquire, serve and retain customers over the long term. The primary task was therefore not to recruit more salespeople. The key was to build the company’s own business model.
The greatest risk was not a lack of manufacturing capability
The company knew how to manufacture high-quality products reliably and at scale. That was precisely what had made it a strong supplier to international brands. Over time, however, its greatest strength had become a trap. Almost all its production capacity was tied up in orders for which someone else controlled the product, the customer and the price.
Private-label manufacturing is not inherently a poor business model. It helps utilise capacity, generates revenue and can be a stable part of the portfolio. The problem arises when it becomes virtually the company’s only business model.
The greatest risk was not that the company could not manufacture. It was that someone else was deciding its future.
From analysis to direct responsibility for delivering change
The owner initially engaged us to conduct a comprehensive review of the company and develop a strategy for its future growth.
The analysis confirmed that simply increasing production or implementing further across-the-board cost reductions would not resolve the situation. The company needed to change its position in the value chain and gradually build its own international sales operation.
A strategy alone, however, changes nothing. Someone must implement it within the business, make day-to-day decisions, manage risks and take responsibility for the outcome.
The owner therefore engaged a complete implementation team through BM4U:
- a manager responsible for leading strategic change across the company;
- a new sales director with international commercial experience;
- two business development managers focused on entering new markets and acquiring customers.
The team began working directly within the company and took responsibility for implementing each stage of the transformation. This was not a consulting assignment that ended with a presentation and a list of recommendations. It meant taking responsibility for changing the company’s business model.
Step one Avoid conflict with existing customers
The biggest mistake would have been to start competing immediately with the company’s principal customers in their own markets.
We therefore adopted a carefully managed strategy for the first 24 months. The company began entering markets and segments where it would not compete directly with its existing customers. The aim was not to win over their end customers or trigger an immediate conflict. It was to create the time and space needed to build an independent sales channel.
We gradually began to:
- select promising countries and customer segments;
- analyse competitors and local market conditions;
- define suitable products for the company’s own range;
- develop a pricing and distribution strategy;
- build a network of commercial contacts;
- establish logistics, installation and commissioning arrangements;
- create a system for servicing and handling warranty claims;
- prepare marketing and product communications for each market.
Only then did it make sense to begin approaching new customers systematically.
Step two Gradually reallocate production capacity
The company had little scope to increase output. It therefore needed to change which customers its existing capacity served and the financial returns that capacity generated.
New orders from end customers gradually replaced part of the production carried out under third-party brands. This was not an abrupt shift. Capacity was reallocated progressively as the company secured new customers and established its ability to serve them reliably. We also recognised that, in some markets, outright sales could be replaced by long-term rentals with servicing and spare parts supply. This further improved profitability significantly. The company also gained control over further investment opportunities with its clients, and new product ideas began to emerge rapidly.
The difference in the economics was substantial.
In traditional private-label manufacturing, the net contribution after production, warehousing, logistics and other operating costs was in the low single digits. For selected products in the company’s own range, margins after direct costs reach as much as 60%.
These figures cannot be compared directly. The first describes the company’s overall operating profitability, while the second describes the economics of specific proprietary products before shared overheads are allocated. Nevertheless, the difference explains why even a relatively small reallocation of production capacity to the company’s own products could materially change its financial performance.
Higher margins were not an end in themselves. They provide funding for further development:
- product innovation;
- improvements to production processes;
- marketing,
- servicing;
- monitoring software;
- automation;
- further customer acquisition and market expansion.
The company entered a positive cycle. Its own sales operation generated funds that could be reinvested in the competitiveness of its products and in further markets.
Step three Consistently enforce the terms already agreed
Building its own marketing and sales operation also changed the company’s negotiating position with existing customers who were also competitors.
It no longer felt compelled to accept every deviation from agreed terms for fear of losing orders. The new commercial team therefore focused not only on new customers, but also on managing existing contractual relationships more rigorously.
The primary objective was not across-the-board price increases. The company began enforcing terms that were already included in its contracts:
- minimum order volumes;
- payment for samples and bespoke modifications;
- storage charges for products not collected by the agreed dates;
- adherence to agreed purchasing schedules;
- reimbursement of exceptional logistics and service costs.
Products were accumulating in warehouses because customers were not taking delivery in line with the agreed schedules. Cash was tied up in this inventory, while the company also funded storage and the associated operating costs.
More disciplined management of inventory, receivables and contractual commitments helped release almost CZK 80 million from working capital during the first 18 months.
This was not a new loan or a grant. It was money that already belonged to the company but was tied up in its operations.
Releasing working capital reduced the need for external financing, lowered interest expense and provided funds for further planned investments.
Results after 18 months
After 18 months, neither the factory nor its underlying production capacity had changed. What had changed, above all, was how the company used that capacity and who controlled the product, the customer and the price.
| Metric | Před změnou | Before the transformation |
| Annual revenue | Approx. CZK 420 million | Stable to slightly higher |
| Operating profit | Approx. CZK 6 million | Approx. CZK 52 million |
| Operating margin | 1,4 % | More than 12% |
| Increase in operating profit | CZK 46 million | |
| Share of private-label production | More than 80% of output | Gradually declining to below 60% |
| Own international sales operation | Minimal | Established sales channel |
| Working capital released | Almost CZK 80 million |
Operating margin is calculated as operating profit divided by revenue, multiplied by 100.
With revenue at a similar level and operating profit of approximately CZK 52 million, operating margin rose to more than 12%.
The CZK 46 million increase in operating profit did not come from a single measure. It resulted from several changes working together:
- a higher share of proprietary products and direct exports;
- a more profitable product and customer mix;
- more rigorous management of contractual terms;
- better management of pricing, inventory, receivables and working capital;
- a gradual reduction in dependence on a few major customers.
The project continues beyond the initial results
Following the initial results achieved in summer 2026, the original engagement was extended for a further three years.
BM4U’s transformation team continues to work with the client in the same composition, and the project is entering three further phases.
We can disclose the first two:
1 Further expansion of the company’s international sales operation
The aim is to gradually reduce the share of total revenue generated by the formerly dominant customers to below 35%. This is not because the company wants to end those relationships, but to ensure that no single customer or group of customers can determine its future. There is significant growth potential in the countries where we have already established the client’s presence, including opportunities to win additional customers. We are also preparing to enter further countries. One particularly promising innovation is the shift from outright sales to rentals. This is not suitable for every market and requires careful risk management, but it substantially strengthens our competitive position.
2 Investment in innovation and greater competitiveness
Higher profitability and the cash released will fund:
- new products;
- process modernisation;
- marketing,
- service infrastructure;
- monitoring and software;
- automation;
- further customer acquisition and market expansion.
We will leave the third phase of the transformation plan for a future article. However, the logic of the model points to substantial potential not only to expand production in the Czech Republic, but also to relocate and build capacity in other countries. Where a well-paid service operation is already needed, manufacturing may also become viable under certain conditions. That remains a future possibility and has not yet been approved by the owners.
What business owners should take away from this story
Manufacturing alone does not guarantee that a company controls its business.
You can have skilled people, modern technology, fully utilised capacity and hundreds of millions of Czech crowns in revenue. But if others control the product, the customer and the price, you remain dependent on their strategies and decisions.
The objective does not have to be to abandon private-label manufacturing altogether. It is to give it a role in which it helps utilise capacity and stabilise production without determining the future of the entire company. Such a change cannot be delivered by one new salesperson, a new website or a series of consulting sessions.
It requires a strategy, an experienced implementation team and someone prepared to take direct responsibility for the outcome.
The greatest risk was not that the company could not manufacture. It was that someone else was deciding its future.