Profittability Assesment

This project focuses on a small artisanal butcher shop that, despite strong revenues, started facing financial pressure following a sharp increase in energy and operating costs. The objective was to understand where value was being lost and identify actionable levers to restore profitability. A key challenge was the nature of the business itself: raw materials are transformed into multiple products, making it difficult to accurately trace costs and margins at item level.

PROFITABILITY OVERVIEW

The initial analysis focused on detailed profitability breakdown highlighted that operating costs were exceeding the target threshold, reaching approximately 86% of revenues, while EBIT margins were significantly below the desired level. This indicated that even small improvements in cost efficiency could have a substantial impact on overall profitability. Actions were therefore focused on optimizing key cost drivers, particularly energy consumption and raw material purchasing.

COST STRUCTURE ANALYSIS

The next step was indeed to understanding the cost structure. It revealed a strong incidence of raw material costs compared to other operating expenses such as labor, services, logistics and taxes. To address this, a weekly supplier price monitoring system was introduced, benchmarking purchase prices against market references (e.g. ISMEA), ensuring continuous cost control and improved purchasing decisions.

PRODUCT-LEVEL REVENUE

A detailed product-level analysis was conducted by allocating raw material, operational costs and processing effort through a custom “effort index”. This made it possible to identify items that, despite generating revenue, were actually operating at a loss. Based on these insights, a dynamic pricing monitoring system was introduced to better align selling prices with the true cost and complexity of each product.

CHANNEL & CREDIT RISK ANALYSIS

Revenue streams were analyzed across B2C and B2B channels, highlighting the impact of unpaid invoices on overall profitability. A significant portion of margins was being eroded by delayed or missing payments from B2B clients. To mitigate this, structured credit policies were introduced, including maximum exposure limits, defined payment terms, and price adjustments for higher-risk customers.

The combination of these actions enabled a clearer understanding of where value was generated and lost, supporting more informed and sustainable business decisions.