--- name: profitability-lever-analyzer description: "Decomposes period-over-period margin performance into volume, price, mix, cost, and efficiency levers using variance/bridge analysis, quantifies each lever's contribution in currency and margin points, and flags outlier drivers requiring intervention. Use when explaining why margin moved, building a profit bridge, decomposing P&L variance, or diagnosing which levers are creating or destroying profitability." argument-hint: "[period-comparison] [pnl-data]" allowed-tools: ["Read"] --- # Profitability Lever Analyzer ## Purpose Decompose a period-over-period change in gross or operating margin into its underlying levers — volume, price, mix, cost, and efficiency — and quantify how much each contributed in dollars and margin points, so finance and strategy teams can explain exactly why profit moved and where to intervene. Replaces hand-waving "margin was down on volume" narratives with a defensible, fully-reconciled profit bridge. ## When to Use Invoke this skill when the user asks to: - Explain why gross margin or operating margin changed vs. prior period, budget, or forecast - Build a profit bridge or margin waterfall (PVM — price/volume/mix — analysis) - Decompose P&L variance into its underlying drivers - Identify which product lines, segments, or SKUs are dragging margin - Quantify the dollar impact of a price change, volume shift, or cost inflation - Prepare a board or exec narrative on margin performance and required actions ## Inputs Required Before starting, collect: - **Comparison basis**: What two states are being compared (actual vs. budget, this year vs. last year, actual vs. forecast) and the periods involved - **Revenue detail**: Units sold and average selling price by product/line/segment for both periods (or total revenue with as much breakdown as available) - **Cost detail**: COGS and/or operating costs, ideally split into variable vs. fixed and by category for both periods - **Margin figures**: Reported gross margin and/or operating margin (dollars and %) for both periods - **Mix dimension**: The dimension along which mix matters (product, channel, geography, customer segment) - **Known events**: Any one-off items, reclassifications, price actions, or structural changes in the period - **Intervention threshold**: What size of variance (dollars or margin points) is considered material and warrants a flag If cost isn't split into variable vs. fixed, treat all COGS as variable for the bridge and note the limitation. If units and price aren't available, run a simplified rate/volume bridge on revenue and note reduced precision. ## Instructions ### Step 1: Reconcile the Endpoints Before decomposing anything, anchor the bridge: - State the starting margin (Period 1) and ending margin (Period 2) in both dollars and percent - Compute the total margin delta to be explained — this is the number every lever must sum back to - Confirm the total delta before proceeding; the completed bridge must reconcile to this figure exactly (rounding aside) ### Step 2: Isolate the Volume Lever Quantify the margin impact of selling more or fewer units at the *prior* margin structure: - **Volume effect** = (Units₂ − Units₁) × Unit contribution margin₁ - Hold price, mix, and cost constant at Period 1 levels — volume answers only "what did the change in quantity do?" - Compute per product/segment where unit data exists, then aggregate - Flag whether volume was the dominant driver or a rounding contributor ### Step 3: Isolate the Price Lever Quantify the margin impact of selling the *same* units at different prices: - **Price effect** = (Price₂ − Price₁) × Units₂ - This captures realized price/rate changes: list price moves, discounting, promotional depth, contract repricing - Separate stated price actions from realized price erosion (discount leakage) where the data allows - Note price actions that were taken but not realized — a signal of discounting or leakage ### Step 4: Isolate the Mix Lever Quantify the margin impact of a shift in *what* was sold, independent of total volume: - **Mix effect** = Σ [(Actual unit share₂ − share₁) × Total units₂ × (Margin per unitₚ − Weighted-avg margin per unit₁)] - Mix isolates the effect of the sales blend shifting toward higher- or lower-margin products/segments - Positive mix = shift toward premium/high-margin offerings; negative mix = shift toward low-margin volume - Call out the specific products/segments driving the mix swing ### Step 5: Isolate the Cost Lever Quantify the margin impact of changes in unit cost and cost structure: - **Variable cost effect** = (Unit cost₂ − Unit cost₁) × Units₂ — captures input inflation, supplier changes, yield loss - **Fixed cost effect** = Fixed cost₂ − Fixed cost₁ — captures absorption, headcount, overhead changes - Split cost inflation (rate) from cost efficiency (usage) where the data supports it - Attribute cost movements to categories (materials, labor, freight, overhead) so the intervention target is clear ### Step 6: Isolate the Efficiency Lever Quantify productivity and leverage effects not captured above: - Operating leverage: fixed cost spread over higher/lower volume (absorption) - Labor/asset productivity: output per unit of input changing - Waste, rework, yield, and scrap where measurable - This is the residual-adjacent lever; keep its definition tight so it doesn't become a catch-all ### Step 7: Reconcile and Bridge Assemble the full waterfall: - Start: Period 1 margin → +/− Volume → +/− Price → +/− Mix → +/− Cost → +/− Efficiency → End: Period 2 margin - Confirm the sum of all levers equals the total delta from Step 1 - If a residual remains, label it explicitly as "Unexplained / Other" — never silently absorb it into a lever - Express each lever in both dollars and margin points of the total move (e.g., "Price contributed +$2.4M, +180 bps of the total −60 bps swing") ### Step 8: Flag Outliers and Prescribe Intervention For any lever or segment breaching the materiality threshold from intake: - **Direction & magnitude**: Is it helping or hurting, and by how much - **Root driver**: The specific product, cost category, or pricing action behind it - **Persistence**: One-off vs. structural/recurring - **Recommended action**: A concrete lever-specific move (e.g., "renegotiate freight contract — $1.1M of the cost drag is freight rate," "arrest premium-line volume decline driving −90 bps of negative mix") - Rank flagged items by dollar impact, largest first ## Output Format - **Structure**: Endpoint reconciliation → six lever sections (Volume, Price, Mix, Cost, Efficiency, plus residual) → a full margin bridge waterfall → ranked outlier/intervention list - **Length**: 900–1,300 words - **Format**: Prose analysis with an embedded bridge table showing each lever's dollar and bps contribution; outliers as a ranked list - **Sections**: Endpoint Reconciliation → Lever-by-Lever Decomposition → Margin Bridge (table) → Flagged Outliers & Recommended Actions → One-line executive summary of the dominant driver - **Tone**: FP&A director — precise, reconciled, action-oriented; no narrative that isn't tied to a quantified number ## Quality Checklist Before delivering output, verify: - [ ] The sum of all levers reconciles to the total margin delta from Step 1 (rounding aside) - [ ] Any unexplained gap is labeled as a residual — not silently buried in a lever - [ ] Each lever is expressed in both dollars and margin points (bps) - [ ] Volume, price, and mix are computed with a consistent, stated hold-constant convention (not double-counted) - [ ] Every flagged outlier names a specific root driver and a concrete action — not "watch this closely" - [ ] Outliers are ranked by dollar impact, largest first ## Notes - The single most common error in profit bridges is double-counting volume and mix; keep volume at total-quantity level and let mix carry only the blend shift - Sequence matters slightly in PVM math — state your convention (typically volume → price → mix → cost) and apply it consistently so the bridge is reproducible - When variable/fixed cost splits are unavailable, the efficiency lever loses precision; say so rather than overstating confidence - A clean bridge that reconciles but flags nothing actionable has failed — the intervention list is the deliverable that earns the analysis its seat at the table --- ## How to use this skill This file is a Claude Code skill in [Anthropic's standard format](https://docs.anthropic.com/en/docs/claude-code/skills) — markdown with YAML frontmatter at the top. **Installing in Claude Code:** - `~/.claude/skills//SKILL.md` — auto-loads in every session anywhere on your machine (recommended for skills you'll use across multiple projects) - `/.claude/skills//SKILL.md` — auto-loads only when working in that project (recommended for project-specific skills) Restart Claude Code or open a new session to register. **Using in Claude.ai, ChatGPT, Gemini, or other AI tools:** 1. 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