Why did my profit fall? A four-step check
When profit drops, guessing wastes time. A fixed order of checks finds the cause faster.
Step 1: compare equal periods
Compare this month with last month, or this quarter with last quarter. Do not compare a full month with half a month. Write down both profit numbers and the difference.
Step 2: split revenue and cost
Did money coming in fall, did money going out rise, or both? If revenue fell more than cost, you sold less. If cost rose faster than revenue, you are paying more for what you sell, or discounting.
Step 3: find the groups that moved
Break the change down by place, by product, by sales channel and by customer class. Often one or two groups explain most of the drop.
Step 4: check the data
Make sure nothing is missing: a late-entered bill, a duplicated row, or a product renamed halfway through the year can look like a real change.
Related guides
- How to read a simple profit and loss summary
- How to clean sales data before you analyse it
- Month-over-month vs year-over-year: which to use
General information for learning. It is not financial, tax, legal or investment advice.