ProfItability Framework Flashcards
Draw the profit framework
P=R - C
R=R/u * #UnitsSold
C=C/u * #UnitsSold
C/u=FixedCost/u + VariableCost/u
What to do if problem branch is Revenue/U or # Units Sold?
S
I
E
3 steps if problem branch Revenue/U or # Units Sold?
SEGMENT the #, break up into component parts, compare to historical metrics to find where the shift is coming from
ISOLATE the key driver causing the bulk of the problem
EXPLORE possible resolutions
What to do if problem branch fixed or variable cost
S
C
What to do if problem branch fixed or variable cost
SEGMENT into its component parts (e.g. value chain)
COMPARE to historical
D_ until you find the _. D_ on that _ until you I_ what is M- causing the _ of the problem. AKA LEVERAGE POINT
DRILL DOWN until you find the PROBLEM SEGMENT. DRILL DOWN on that PROBLEM SEGMENT until you ISOLATE what is MATHEMATICALLY causing the BULK of the problem. AKA LEVERAGE POINT
The name of the game is _
How far do you drill down?
If you realize a branch or sub-branch is NOT the problem, what do you do?
The name of the game is PROBLEM ISOLATION
Keep DRILLING DOWN until you ISOLATE the problem
If you realize a branch or sub-branch is NOT the problem PULL UP a level and work the REMAINING BRANCHES
What do you do if # Units Sold decline?
When # Units Sold decline, it’s useful to COMPARE the COMPANY# to COMPETITORS to determine if it’s an INDUSTRY-WIDE or COMPANY-SPECIFIC problem
Once you MATHEMATICALLY know what’s causing the problem, you need to understand…..
Once you MATHEMATICALLY know what’s causing the problem, you need to understand WHY the number has CHANGED in the CONTEXT of the MARKETPLACE
Possible segments to get data to isolate and explore: (5)
CRIPD
Possible segments to get data to isolate and explore: (5)
- Customer type
- Region
- Industry vertical
- Product/ line
- Distribution channel
Goal of using FW/ITs?
Goal of using FW/ITs?
TESTING your HYPOTHESIS
When to use profitability framework?
What kind of understanding?
When to use profitability framework?
Profit DECLINE
What kind of understanding?
QUANTITATIVE understanding of client’s business
What to do if it is both a revenue and cost driven problem….
What to do if it is both a revenue and cost driven problem ….
Determine which is DRIVING the BULK of the PROFIT DECLINE
How to ask for segmented information
How to ask for segmented information
id like to segment X into its component parts. Do we have any information on the components that drive X?
What to do after segmenting
What to do after segmenting
Refine your hypo and create a custom issue tree to drive the rest of analysis
What to do once you have mathematically isolated the problem..
What to do once you have mathematically isolated the problem…
Shift to understand QUALITATIVELY what you’ve determined QUANTITATIVELY as the root cause of the client’s problem
profit margin=
profit margin= % of sales that is profit
