Profitability Framework

## Introduction to Profitability Framework The profitability framework is one of the most fundamental tools in a consultant's toolkit. It helps in breaking down complex business problems related to declining profits. ### The Basic Equation Profit = Revenue - Cost #### Revenue Breakdown Revenue = Volume × Price #### Cost Breakdown Cost = Fixed Costs + Variable Costs Variable Cost = Volume × Unit Variable Cost ### How to use this framework 1. **Understand the problem**: Is it a revenue problem, a cost problem, or both? 2. **Isolate the driver**: Drill down into each component to find the root cause. 3. **Analyze external factors**: Consider market trends, competition, and customer behavior. 4. **Develop recommendations**: Propose solutions based on the identified drivers.