🧩 Frameworks

Profitability framework

The go-to structure for ‘profits are down — why?’

Split profit into revenue and cost, then keep splitting until you find the driver: revenue into price and volume, cost into fixed and variable.

Use the data to decide which branch moved, and only dig into that one.

How to break it down

Profit

Revenue → Price × Volume

Cost → Fixed + Variable

🧮 Example

Profits fell 20%, volume is flat, price is up 4%. Revenue grew, so the problem is cost — now ask which cost line grew fastest.

🎯 Interview tip

Add an external check: is the whole industry suffering (market) or just this company?

Used in

Learn next

Profit

What's left after you pay for everything.

Revenue

All the money coming in from sales.

Fixed vs variable costs

Costs that stay put vs costs that grow with sales.

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