FREE WORKED EXAMPLE / CONSULTING
The falling-profit problem.
A short introduction to the kind of thinking you'll practise in Consulting Fundamentals. The downloadable starter kit is coming soon.
THE QUESTION
Sales are growing. Profit is falling. Where would you look first?
A fictional services company reports higher revenue this year but lower operating profit. Before guessing at a solution, separate the possible causes.
Revenue can be broken into price × volume. Costs can be separated into fixed and variable components. The first job is to find which driver changed and why.
A better first step
Define the scope and timeframe, request comparable revenue and cost data, and test each driver. Do not assume that increasing sales is automatically the answer.
Try the question: what if revenue rises 10% but costs rise 20%?
If revenue was £10m and costs £8m, profit was £2m. With revenue at £11m and costs at £9.6m, profit falls to £1.4m. That is a £0.6m profit decline despite higher sales.
CONTINUE LEARNING
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The full Consulting Fundamentals guide is being developed with additional exercises, worked answers and supporting templates.