Dear current and ex-Consultants,
In case studies the profitability cases often focus on profit decrease in absolute terms. Hence, I tend to think that the absolute profit is more important to the clients and consultants than the profit margin. However, profits can increase, while margins go down (higher costs, right?) - if this would continue in that direction, it can become dangerous in my opinion and also lead to lower profits at a certain point.
So, what is more important to look at: the profit in absolute terms or the profit margin? If we just look at the profit and ignore the margin, we could have a wrong impression of the company (e.g. increased profits, everything is fine - but in reality costs are constantly increasing). Can we even state a logical relation between the two (e.g. if revenues increase and profit increase, margins increase as well?) or is it totally dependent on the situation (e.g. all different directions are possible like profit decrease and margin increase etc.)
Additional question: when dealing with profit margin changes over time, is it better to look at it on a unit basis ((p-c)/c), or absolute ((total revenues minus total costs)/total revenues)) ? Does it even matter to distinguish the two ways for profit margins in general (inmho it shouldn't as mathematically they are the same) ?