Cookie and Privacy Settings

This website uses cookies to enable essential functions like the user login and sessions. We also use cookies and third-party tools to improve your surfing experience on preplounge.com. You can choose to activate only essential cookies or all cookies. You can always change your preference in the cookie and privacy settings. This link can also be found in the footer of the site. If you need more information, please visit our privacy policy.

Data processing in the USA: By clicking on "I accept", you also consent, in accordance with article 49 paragraph 1 sentence 1 lit. GDPR, to your data being processed in the USA (by Google LLC, Facebook Inc., LinkedIn Inc., Stripe, Paypal).

Manage settings individually I accept
expert
Expert with best answer

Sidi

99% Recommendation Rate

427 Meetings

4,140 Q&A Upvotes

USD 449 / Coaching

3

Margin Generalisation

Can we state that whenever absolute profits are down, margins can never increase?

The other situation, however, is possible: profits are up, margins can increase or decrease depending on situation.

Cheers!

Can we state that whenever absolute profits are down, margins can never increase?

The other situation, however, is possible: profits are up, margins can increase or decrease depending on situation.

Cheers!

3 answers

  • Upvotes
  • Date ascending
  • Date descending
Best Answer
Book a coaching with Sidi

99% Recommendation Rate

427 Meetings

4,140 Q&A Upvotes

USD 449 / Coaching

Hi Anonymous,

you can easily answer it yourself if you start with the definition of your subject:

Margin = Profits / Revenue

Hence, whether margins increase/decrease/stay constant depends on whether the percentage of revenue decline is higher/lower/identical than the profit decline. If revenues have decreased at a stronger rate compared to profits, then the margin increases despite decreasing costs.

Simple example:

  • Year 1: EUR 10 million revenue and EUR 7 million costs. Hence profits amount to EUR 3 million (margin = 30%).
  • Year 2: Costs have been reduced to EUR 6 million, but also revenue went downhill to EUR 8.8 million. Hence profits have decreased to EUR 2.8 million, while the margin has increased to 32% (2.8 / 8.8).

Hi Anonymous,

you can easily answer it yourself if you start with the definition of your subject:

Margin = Profits / Revenue

Hence, whether margins increase/decrease/stay constant depends on whether the percentage of revenue decline is higher/lower/identical than the profit decline. If revenues have decreased at a stronger rate compared to profits, then the margin increases despite decreasing costs.

Simple example:

  • Year 1: EUR 10 million revenue and EUR 7 million costs. Hence profits amount to EUR 3 million (margin = 30%).
  • Year 2: Costs have been reduced to EUR 6 million, but also revenue went downhill to EUR 8.8 million. Hence profits have decreased to EUR 2.8 million, while the margin has increased to 32% (2.8 / 8.8).

(edited)

Book a coaching with Vlad

97% Recommendation Rate

406 Meetings

11,410 Q&A Upvotes

USD 239 / Coaching

Hi,

That's not correct. The profits can be down even in the situation of the product margin increase if there is a decrease in volumes

Best,

Hi,

That's not correct. The profits can be down even in the situation of the product margin increase if there is a decrease in volumes

Best,

(edited)

Book a coaching with Benjamin

100% Recommendation Rate

55 Meetings

517 Q&A Upvotes

USD 319 / Coaching

Hi,

It simply depends what "margin" refers to :

- if it refers to absolute margin then indeed margin don't increase when absolute profits are down

- if it refers to variable margin then margin can increase or decrease whil absolute profits are down

Best
Benjamin

Hi,

It simply depends what "margin" refers to :

- if it refers to absolute margin then indeed margin don't increase when absolute profits are down

- if it refers to variable margin then margin can increase or decrease whil absolute profits are down

Best
Benjamin

Related case(s)

Oliver Wyman Case: Setting up a Wine Cellar

Solved 59.5k times
Oliver Wyman Case: Setting up a Wine Cellar I’m thinking about setting up a wine cellar in my basement. The way I see it, shelf space would be divided into two sections: (1) a “drinking” section where I store bottles for my own consumption and (2) an “investment” section where I store bottles that I intend to sell at a profit after they appreciate in value several years down the line. The idea is to earn enough money with the “investment” section of the cellar in order to subsidize whatever I consume in the “drinking” section over time.   I'm obviously constrained by several things: the amount of money I am able to spend, the amount of wine I can (or want to) drink, the space available for the cellar, and so on.
4.3 5 3609
| Rating: (4.3 / 5.0)

I’m thinking about setting up a wine cellar in my basement. The way I see it, shelf space would be divided into two sections: (1) a “drinking” section where I store bottles for my own consumption and (2) an “investment” section where I store bottles that I intend to sell at a profit after they appre ... Open whole case

DHL Consulting case: Bike Shop

Solved 55.0k times
DHL Consulting case: Bike Shop You have been hired to support the owner of a bike-shop as a business consultant. The bike-shop has suffered a significant revenue decline during the last year, and now the owner would like you to assess the situation and options for the way forward. They want to know last year’s profit, i.e. how it was affected by the revenue decline, and what the priority actions are to survive the next year. (short term) In addition they would like to understand the strategic competitive position of the shop better and how to increase revenues again mid- to long-term.
4.3 5 11505
| Rating: (4.3 / 5.0)

You have been hired to support the owner of a bike-shop as a business consultant. The bike-shop has suffered a significant revenue decline during the last year, and now the owner would like you to assess the situation and options for the way forward. They want to know last year’s profit, i.e. how i ... Open whole case

Bank envelope

Solved 59.1k times
Bank envelope Your client, Customlope, is the leader in the US secure envelope manufacturing industry. Banks buy these envelopes for operations such as money deposits and high value transactions. Next year, a new digital technology will reduce the overall number of units sold in the industry by 25%. In the short term, our client wants to maintain his current profit level without investing in the new technology. How can you help him?
4.5 5 2445
| Rating: (4.5 / 5.0) |

Your client, Customlope, is the leader in the US secure envelope manufacturing industry. Banks buy these envelopes for operations such as money deposits and high value transactions. Next year, a new digital technology will reduce the overall number of units sold in the industry by 25%. In the shor ... Open whole case

Chewing gum

Solved 56.9k times
Chewing gum Your client is a chewing gum manufacturer. The CEO of the manufacturing company wants you to find out why his company is experiencing a declining profit margin. He then wants you to suggest ways to improve his company’s profit margin.
4.4 5 2165
| Rating: (4.4 / 5.0) |

Your client is a chewing gum manufacturer. The CEO of the manufacturing company wants you to find out why his company is experiencing a declining profit margin. He then wants you to suggest ways to improve his company’s profit margin. Open whole case

Madflix.com

Solved 56.3k times
Madflix.com Our client is madflix.com, a website similar to Netflix. The biggest difference is however that Madflix targets mainly men and provides a majority of “mad movies”, such as action, horror or science-fiction movies. Clients sign up online, order online, receive the movie and mail it back. Madflix is not satisfied with the profit margin, as it has declined over the last two years. The CEO has hired us to recommend a solution.
4.4 5 2644
| Rating: (4.4 / 5.0)

Our client is madflix.com, a website similar to Netflix. The biggest difference is however that Madflix targets mainly men and provides a majority of “mad movies”, such as action, horror or science-fiction movies. Clients sign up online, order online, receive the movie and mail it back. Madflix is ... Open whole case