Budget season has started, and most 2027 plans are being built on a number that cannot support them.
Here is what the market is planning. In the AICPA and CIMA Economic Outlook Survey for the third quarter of 2026, fielded across 206 senior finance decision-makers between August 4 and August 25, executives projected revenue growth of 3.1% over the next twelve months and profit growth of 1.5%. Both numbers improved from the prior quarter. Both were reported as good news.
Read them next to each other. Profit is planned to grow at less than half the rate of revenue.
That is not a forecast. That is a description of what these businesses believe their growth is worth.
The arithmetic nobody runs in the planning meeting
Put those two percentages on a business you can picture. Illustrative figures, not a client: call it $30M of revenue and $3M of EBITDA.
- 3.1% revenue growth is $930K of new revenue.
- 1.5% profit growth is $45K of new profit.
That is an incremental margin of 4.8% on everything the company is about to go earn, staff, deliver, and collect next year. Nearly a million dollars of new top line, and forty-five thousand dollars of it reaches the bottom.
Now price it. At an illustrative 8x EBITDA, that entire year of growth adds roughly $360K of enterprise value. The revenue behind it took twelve months, a sales plan, delivery capacity, and working capital to produce.
That is the trade the plan is making, stated in the only two units that matter. Whether it is a good trade depends entirely on something the plan does not say: which parts of that $930K carried margin and which did not.
The same survey has the spending lines moving the wrong way against that. Projected IT spending eased from 3.4% to 2.9%, other capital spending from 2.9% to 2.4%, and training from 1.8% to 1.3%. Expansion plans fell from 54% to 49%. Inflation returned to the number one spot on the list of challenges, with 78% of respondents citing it.
The wrong conclusion
The wrong conclusion is that everyone should cut harder. Discipline is not the problem. Most of these teams are disciplined. They are cutting IT and training precisely because they are disciplined, and those are the two lines a CEO can cut without a conversation.
The problem is that the cut is undirected. A company that does not know which growth built value last year cannot know which capability to protect next year. It cuts the line that is easiest to cut rather than the line that is least productive, and those are rarely the same line.
There is a version of that plan that is defensible, and it starts one step earlier than most planning processes do.
You cannot plan 2027 until you know what 2026 earned
Not what 2026 billed. What it earned, by product line, by customer, by contract.
Most companies walk into budget season holding exactly two numbers: a blended gross margin and a growth target. Those two numbers together are structurally incapable of telling you which growth to buy more of. A blended margin is an average across lines that behave nothing alike, and an average hides the one that is underwater.
Four inputs belong in hand before the first budget meeting. None of them require a system change.
01. Gross profit by line, with cost to serve allocated
Revenue by line is easy and almost useless. The question is what each line earns after the cost of actually delivering it, including the support, implementation, and service load that usually sits in operating expense and gets spread evenly across lines that do not consume it evenly.
Most companies past the point where a controller can hold the whole business in their head have one line that loses money on every unit and do not know which one. It is rarely the line people suspect. It is usually the newest one, priced to win, never repriced, and now quietly funded by the oldest one.
02. Your top twenty customers ranked by gross profit, not by revenue
Then put the two rankings side by side. The gap between a customer's share of revenue and its share of gross profit is the single most informative number in the business, and almost nobody produces it.
Illustrative again: top five customers at 42% of revenue and 26% of gross profit. That 16-point gap is not a rounding issue. It means the relationships with the most leverage over you have been repriced downward across successive renewals, one reasonable concession at a time, and no single decision ever looked large enough to escalate.
03. Discounting as a reportable line
If discounting does not require approval and cannot be reported on, it is not a pricing policy. It is a habit with a revenue number attached.
The fix is unglamorous and costs nothing: record list price and realized price on every deal, and report the delta monthly. Within two quarters you will know whether your margin is being negotiated away in the field or in the contract, and those two problems have completely different remedies.
04. A comp plan that pays for margin
Your compensation plan is already answering the question "big low-margin deal or smaller high-margin one" whether or not anyone intended it to. If it pays on revenue, it has answered. Every incentive conversation you have about margin is competing with a document that pays people to ignore you.
This is the input CEOs resist most, because changing comp mid-cycle is genuinely disruptive. It is also the input with the shortest lag between decision and effect.
What the board will actually ask
Three questions, in this order, and a plan built on a blended margin cannot answer any of them.
- Which of last year's growth do you want more of. Not which segment grew. Which segment grew and paid for itself.
- What did you decide to stop doing. A plan with no subtractions in it is a forecast wearing a plan's clothing, and boards read it that way.
- What breaks if revenue comes in 10% light. Not what you would cut. What actually breaks, which is a question about fixed cost structure and cash, and which has a real answer only if the first two questions were done properly.
What this looked like from the inside
I ran this sequence at Medicx Health, and the order is the part worth copying.
We did not plan our way to a better margin. We stabilized the cash first, then rebuilt the economics line by line, found where margin was actually being made and where it was being rented, and expanded gross margin by more than twenty points over my tenure, into the high-50s percent. Revenue went from roughly $15M to a $40M run rate at north of 20% EBITDA margins by the 2023 exit. Then, and only then, the company was something worth buying for $95M by OptimizeRx (NASDAQ: OPRX) in October 2023.
The $95M was the outcome. The achievement was the eighteen months of line-level work that made it the right price.
What I would tell any CEO heading into a planning cycle is that the diligence a buyer will eventually run on your economics is the same analysis that makes your operating plan good. You are going to do the work either way. The only question is whether you do it while you still have time to act on what it finds, or under a signed LOI when the findings are only a discount.
Three ways a 2027 plan loses the room
None of these are about the numbers being wrong.
- It is a budget wearing a plan's name. A budget is a number. A plan is a set of decisions with a number attached. Boards can tell the difference in about four minutes, and a budget presented as a plan spends the rest of the meeting on defense.
- The growth is unattributed. If the plan says revenue grows 12% but cannot say how much comes from price, volume, mix, and new logos separately, nobody in the room can assess whether it is achievable. Unattributed growth reads as hope.
- There is no downside case with a trigger. Every plan has a downside page. Very few name what has to be observably true, by when, before the company acts on it. A downside case without a trigger date is a paragraph, not a plan.
The 30-day sequence, before you build the plan
This is what I run, in this order, and it does not require new headcount or a system change.
- Week 1. Build line-level gross profit with cost to serve allocated. Argue about the allocation method for exactly one meeting, then pick one and hold it.
- Week 2. Rank customers by gross profit and put it beside the revenue ranking. Circle every customer whose two ranks differ by more than five places. Those are your conversations.
- Week 3. Pull twelve months of realized price against list price by line. Whatever the gap is, that is your unbooked discount, and it is usually larger than the cost line anybody is currently trying to cut.
- Week 4. Read your comp plan as though you were a rep optimizing it. Write down what it pays people to do. Compare that list to your 2027 priorities.
Then start planning. You will find the four inputs have already made most of the decisions for you, which is the point. Planning is not where the thinking happens. It is where the thinking gets written down.
The plan that survives the board is not the most detailed one. It is the one where every number has a reason underneath it, and the CEO can give the reason without opening the appendix.