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Talent Seniority Pyramid Impact on Margins

Services businesses are typically talent-dependent, and providers prioritize creating teams with the appropriate skills and seniority. On the one hand, it would be prohibitively expensive to staff projects with only senior members, and secondarily, this does not allow the provider to train teams for professional growth (tomorrow’s leaders).


There is a reason services businesses plan their team’s seniority as a pyramid (literally fewer senior members and more entry-level professionals). Fewer individuals make it to the top, and many are left behind along the way (you may have heard “up or out”). Additionally, some folks don’t want to become management within the company and are content with an IC role. Management and seniors have less time, and juniors have more availability, given their responsibility and experience levels.

Financially, gross margins tend to be higher for entry-level roles. If this is combined with availability (utilization), the math is clear for the onus on creating a true seniority pyramid among service providers.

 

talent-margins

 

The chart above illustrates this point with a larger proportion of high-margin roles within an example team.

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