What a typical prompt looks like
Example prompt
"Your profits are down by 20%, analyse the reason for the same by isolating the problem."
It is important to begin by understanding the problem better by asking some preliminary questions for profitability cases, such as:
- 1Since when has the client been facing the problem and what is the magnitude of the decline?
- 2Where is the client located, geographically?
- 3Which part of the value chain does our client lie in?
- 4Is it a company-specific or an industry-wide problem?
- 5Segmentation questions: All stores? All geographies? All product lines? All customers?
The problem stems from revenue, cost, or both
Revenue is volume times price
Revenue side can be affected by production, distribution and demand.
Look at the product
- Number of products sold
- Price of products sold
- Product mix
Look at the sales
- Number of sales
- Average ticket size
Number of sales = Footfall × Conversion
Look at the customer
- Number of customers
- Revenue per customer
Essentially, don't restrict yourself to one framework.
Cost is units times cost per unit
For cost side problems, it is helpful to draw a process map or divide the costs into fixed and variable costs.
Fixed cost components
Some of the most common fixed costs are: land, building, fixed component of salaries, equipment, furniture, machinery, warehouses, depreciation, fixed charges such as interest payments and insurance, marketing and taxes.
Variable cost components
Some of the most common variable costs are: raw material, transportation, processing and packaging, storage, distribution, marketing and after-sales expenses.
Note: This is an indicative and not exhaustive list. The above components will vary according to the industry.