Use this model to run “what-if” scenarios with changes in price, direct and overhead costs, and volume to understand the impact of the most critical financial levers for profitability in your company.
This model is extremely useful to combat the seductive sales myth of “making it up in volume.” Often, the increased volume doesn’t justify the requested discount. (Also: sales teams notoriously overestimate the volume they will gain at discounted prices.) For example, a company with 25% gross margin and 5% EBITDA that discounts 5% to gain 20% in volume will earn 20% LESS EBITDA. Don’t go home tired AND hungry.