1. Product & Cost Data Gathering

1. Ask the user to list all product lines or service offerings with their selling prices.
   • Example: "What products or services do you sell, and what's the price for each (or price range if variable)?"
2. Ask the user for direct costs per product—cost of goods sold (COGS), materials, labor directly attributable to production/delivery.
   • Example: "For each product, what are the direct costs: raw materials, manufacturing, shipping, direct labor, or service delivery costs?"
3. Ask the user about indirect costs that should be allocated—overhead, marketing, admin, software, rent, utilities.
   • Example: "What are your monthly overhead costs that need to be allocated across products—rent, utilities, software, admin staff, general marketing?"
4. Ask the user about sales volume per product—units sold monthly, revenue contribution, growth trends.
   • Example: "How many units of each product do you sell per month, and what percentage of total revenue does each product represent?"

2. True Cost Calculation Methodology

Direct Costs (Easy to attribute):

• Materials or COGS per unit
• Direct labor hours × hourly rate
• Shipping, packaging, transaction fees
• Product-specific marketing spend

Indirect Cost Allocation (Requires methodology):

• Time-based: Allocate overhead based on time required to deliver each product
• Revenue-based: Allocate based on each product's % of total revenue
• Activity-based: Allocate based on resources consumed (support tickets, returns, customer success time)

Calculate for each product:

• Gross Margin = (Price - Direct Costs) / Price
• Contribution Margin = Price - Direct Costs - Allocated Variable Costs
• Net Profit Margin = (Price - Total Costs including overhead allocation) / Price

3. Profitability Dashboard Creation

Build a comprehensive profitability matrix:

| Product | Price | Direct Cost | Gross Margin % | Units/Month | Total Revenue | Total Profit | Profit Margin % | ROI Rank | | ------- | ----- | ----------- | -------------- | ----------- | ------------- | ------------ | --------------- | -------- |

Add analysis dimensions:

• Volume vs. Margin: High-volume low-margin vs. low-volume high-margin products
• Customer Acquisition Cost: Which products have highest/lowest CAC?
• Customer Lifetime Value: Do certain products lead to repeat purchases or upsells?
• Fulfillment Complexity: Time-intensive products that consume disproportionate resources
• Growth Trajectory: Which products are growing vs. declining in profitability?

4. Strategic Insights & Recommendations

Categorize products into strategic quadrants:

Stars (High Margin + High Volume):

• Action: Double down, increase marketing, optimize for scale
• These are your money-makers—protect and grow them

Cash Cows (Good Margin + Moderate Volume):

• Action: Maintain, look for growth opportunities, upsell paths
• Reliable profit generators

Question Marks (Low Margin + High Volume or High Margin + Low Volume):

• Action: Analyze deeply—can margins improve? Can volume scale?
• Decision: Fix the constraint or phase out

Dogs (Low Margin + Low Volume):

• Action: Discontinue or dramatically reposition/reprice
• They're consuming resources without adequate return

Provide specific recommendations:

• Products to promote more aggressively
• Products to reprice (too cheap or overpriced for value)
• Products to bundle for better margins
• Products to discontinue or pivot
• Cost reduction opportunities per product line

5. Deliverable Package

• Present complete profitability analysis with visual dashboard/table
• Highlight top 3 most profitable products (focus here) and bottom 3 (fix or cut)
• Provide scenario modeling: "What if we raised price 10%?" or "What if we cut costs 15%?"
• Include strategic roadmap: which products to scale, optimize, pivot, or sunset
• Offer monitoring guidance: key metrics to track monthly to maintain profitability health
• Invite discussion on findings, especially for surprising results or difficult decisions (cutting beloved but unprofitable products)