Sample Economic Factors to Consider in a P&L Case

Not sure why you would "go outside" the already well defined P&L framework?!

Hi,
you can think about demographics, exchange $-€, interest rates, oil price, socio-economic issues, unemployment rate

Hope it helps,
Antonello

The economic factors in P&L are pretty standard already and googleable, too :)

These might include

• Revenue (or Sales)
• Cost of Goods Sold (or Cost of Sales)
• Selling, General & Administrative (SG&A) Expenses
• Marketing and Advertising
• Technology/Research & Development
• Interest Expense
• Taxes
• Net Income
• Etc.

Hope that helps!

Cheers,

GB

Hi there,

If you're asking specifically about external shocks to a P&L, use social, politcal, economic, environmental as a structure. I.e. changes in customer demand, new laws/legislation/regulation, economic shocks (both supply and demand side), and weather-related event.

Now, in terms of how to generally approach profitability cases:

General Profitability

Some ways to think/brainstorm of possibilities include:

Volume Down: Competition reduced prices or improved their product (outcompeting you), competition just launched effective marketing, regulation has slowed you down, economic decline, environmental disaster, tarrifs, suppliers disrupting your production, your product no longer applies to the customer (i.e. decline has been happening for a while)...and so on and so forth...

Price Down: We're in a price war, costs have gone down so we're realising this, regulation has created a price cap, we ran a discount program

Variable Costs Up: Raw materials costing more, inefficient contracts, ageing workforce, deteriorating workforce, regulations, quality control

Fixed Costs Up: Recent large investments

Cutting Costs

In general, for determining cost issues, you need to break down the problem into a tree/root-cause analysis and ask the highest level (but specific) questions first! In this way, you essentially move down the tree.

How do you identify where to look? Well, you need to look into whichever of the following 5 make the most sense based on where you are:

1. What's the biggest? (i.e. largest piece of the pie...most likely to change the end result)
2. What's changing the most? (I.e. could be driving the most and most likely to be fixable)
3. What's the easiest to answer/eliminate? (i.e. quick win. Yes/No type of question that eliminates a lot of other things)
4. What's the most different? (differences between companies, business units, products, geographies etc....difference = oopportunity)
5. What's the most likely? (self-explanatory)

https://www.preplounge.com/en/consulting-forum/structure-breakdown-for-costs-7963

https://www.preplounge.com/en/consulting-forum/inventory-costs-how-to-segment-6861

https://www.preplounge.com/en/consulting-forum/direct-and-indirect-instead-of-fixed-and-variable-6272

https://www.preplounge.com/en/consulting-forum/when-should-i-break-down-costs-as-fixed-and-variable-as-opposed-to-over-the-value-chain-5990

Increase Sales

Some major ways companies boost sales include:

• SAAS (software as a service)
• (Relatedly) Subscription revenue
  • Get people onot subscription plans (i.e. Netflix)
• Behavior-changing "memberships" - i.e. Amazon Prime
  • When people enter Prime membership, they actually actively spend more than they did before
• Bundling
  • I.e. sell a few things together
• Radiation
  • Sell products similar to the current one
• Low-price entry
  • Get someone in with a super cheap/good deal, then, now that you have them as a customer, sell additional, higher-margin products (insurance companies do this, for example)

You mean revenue drivers that are dependent on macro economics?

• GDP
• Demographics (people getting older and shifting spending patterns)
• Consumer makro trends (sustainability, individualism, etc.)
• Globalization (people buying from international competitors)
• ...

Hello,

If you are referring to external factors that could influence your client performance I would usually consider just the size and trends of the market and the competition analysis. I don't see many cases where GDP/Capita or similar can help you to solve the case.

Best,
Luca