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When sales growth reduces EBITDA?

Hello. Any framework to analyse it? What possible detailed list of elements can influence?

Hello. Any framework to analyse it? What possible detailed list of elements can influence?

(edited)

2 answers

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Hi Roberto,

There are probably 3 main areas that could be influencing this.

1) Cost increases that directly led to this sales growth (i.e. new factories, increased sales team, larger marketing bucket etc.)

2) Pricing changes that drove sales. I.e we charge less for a product, earn much lower margins, drive volumes up, but lose money.

3) Product mix - we are selling a lot more of a low-margin product

I also note that you've posted a lot of questions recently. Have you considered coaching? 1-off Q&As are not the best approach to building full knowledge of the business world + casing!

Hi Roberto,

There are probably 3 main areas that could be influencing this.

1) Cost increases that directly led to this sales growth (i.e. new factories, increased sales team, larger marketing bucket etc.)

2) Pricing changes that drove sales. I.e we charge less for a product, earn much lower margins, drive volumes up, but lose money.

3) Product mix - we are selling a lot more of a low-margin product

I also note that you've posted a lot of questions recently. Have you considered coaching? 1-off Q&As are not the best approach to building full knowledge of the business world + casing!

(edited)

Very very good ideas Ian. Thank you very much. — Roberto on Apr 10, 2021

Hi,

Can you be more specific please? Growth of what?

Answer if it is sales growth:

You can start from the equation: EBITDA = Revenues - COGS - SG&A

If the revenues went up but EBITDA went down it means that COGS or/and SG&A went up not linearly

You can start from this equation to find ideas.

I think about:

- Increase of per-unit cost (diseconomies of scale or inflation or suppliers increased their prices)

- Large spending on sales operations to sell more (hiring more employees, advertising, increase of wages due to a new regulation)

Hi,

Can you be more specific please? Growth of what?

Answer if it is sales growth:

You can start from the equation: EBITDA = Revenues - COGS - SG&A

If the revenues went up but EBITDA went down it means that COGS or/and SG&A went up not linearly

You can start from this equation to find ideas.

I think about:

- Increase of per-unit cost (diseconomies of scale or inflation or suppliers increased their prices)

- Large spending on sales operations to sell more (hiring more employees, advertising, increase of wages due to a new regulation)

(edited)

Sorry, I mean sales growth. — Roberto on Apr 10, 2021

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