Why are sales growing but profit falling?
Published · By Kiva Analytics
Sales can grow while profit falls when costs rise faster than revenue or when the business sells more low-margin products. Discounts, returns and a higher cost of serving customers can also reduce profit.
What to investigate
Compare changes in selling prices, sales volume, product mix and costs. Review gross profit separately from operating profit so you can distinguish changes in direct costs from changes in overheads.
A simple example
A business increases revenue from €100,000 to €120,000. Its cost of goods sold rises from €60,000 to €84,000. Gross profit falls from €40,000 to €36,000, while gross margin falls from 40% to 30%.
Illustrative calculation, not a client result. Gross profit = Revenue − Cost of goods sold. Gross margin = Gross profit ÷ Revenue × 100.
What data do you need?
Start with revenue, discounts, returns and direct costs by period. Product, customer or location detail can help identify which changes are driving the result.
How Kiva can help
We build profitability reports that help you compare periods, investigate margin changes and understand performance by product, customer or location.