Flevy Management Insights Q&A
What are the key metrics for assessing the profitability of new versus existing Profit Pools?
     David Tang    |    Profit Pools


This article provides a detailed response to: What are the key metrics for assessing the profitability of new versus existing Profit Pools? For a comprehensive understanding of Profit Pools, we also include relevant case studies for further reading and links to Profit Pools best practice resources.

TLDR Key metrics for assessing profitability of new versus existing Profit Pools include Revenue Growth, Market Share, Profit Margins, Cost Structure, ROI, and Capital Efficiency.

Reading time: 4 minutes

Before we begin, let's review some important management concepts, as they related to this question.

What does Profit Pools Analysis mean?
What does Revenue Growth and Market Share mean?
What does Profit Margins and Cost Structure mean?
What does Return on Investment and Capital Efficiency mean?


Assessing the profitability of new versus existing Profit Pools requires a comprehensive understanding of key metrics that drive value and growth. Profit Pools are segments of the market where money is made and lost, and understanding these can significantly impact an organization's strategic planning and investment decisions. This analysis involves a deep dive into both financial and operational metrics to ensure a holistic view of performance and potential.

Revenue Growth and Market Share

For existing Profit Pools, organizations must evaluate revenue growth and market share. These metrics are critical indicators of the current health and competitive position within the market. A steady or increasing revenue growth rate suggests that the organization is effectively capitalizing on its existing Profit Pools. Market share, on the other hand, provides insight into the organization's relative position compared to competitors. An increasing market share indicates that the organization is becoming more dominant in its existing Profit Pools, potentially at the expense of competitors. This analysis should be complemented by an understanding of market dynamics and customer preferences to ensure sustained growth and relevance.

New Profit Pools require a different approach. Organizations should focus on the potential market size and growth rates. This involves analyzing emerging trends, customer needs, and technological advancements to estimate the future value of these new segments. Initial market share projections can also provide insight into the feasibility and competitive landscape of entering new Profit Pools. It is crucial for organizations to undertake a thorough market analysis and feasibility studies before committing significant resources to new ventures.

Are you familiar with Flevy? We are you shortcut to immediate value.
Flevy provides business best practices—the same as those produced by top-tier consulting firms and used by Fortune 100 companies. Our best practice business frameworks, financial models, and templates are of the same caliber as those produced by top-tier management consulting firms, like McKinsey, BCG, Bain, Deloitte, and Accenture. Most were developed by seasoned executives and consultants with 20+ years of experience.

Trusted by over 10,000+ Client Organizations
Since 2012, we have provided best practices to over 10,000 businesses and organizations of all sizes, from startups and small businesses to the Fortune 100, in over 130 countries.
AT&T GE Cisco Intel IBM Coke Dell Toyota HP Nike Samsung Microsoft Astrazeneca JP Morgan KPMG Walgreens Walmart 3M Kaiser Oracle SAP Google E&Y Volvo Bosch Merck Fedex Shell Amgen Eli Lilly Roche AIG Abbott Amazon PwC T-Mobile Broadcom Bayer Pearson Titleist ConEd Pfizer NTT Data Schwab

Profit Margins and Cost Structure

Assessing profit margins is essential for both new and existing Profit Pools. For existing segments, organizations should analyze gross and net profit margins to understand the efficiency and profitability of current operations. A focus on cost optimization and operational excellence can help improve margins, thereby increasing the value extracted from these Profit Pools. This includes evaluating the cost structure to identify areas where efficiencies can be gained, such as supply chain optimization, process automation, or renegotiating supplier contracts.

In the context of new Profit Pools, understanding the cost structure and anticipated profit margins is crucial for forecasting profitability. This involves detailed cost analysis to estimate the investment required and the break-even point. Organizations must consider both fixed and variable costs, including the cost of entering new markets, research and development expenses, and marketing costs to establish a presence. Projected profit margins offer insight into the long-term viability of these new ventures and help prioritize investments.

Return on Investment and Capital Efficiency

Return on Investment (ROI) is a critical metric for evaluating the success of investments in both new and existing Profit Pools. For existing segments, ROI provides a measure of how effectively the organization is utilizing its capital to generate profits. This includes analyzing investments in technology, infrastructure, and human resources to determine their contribution to profitability. High ROI indicates that the organization is efficiently converting its investments into profit, reinforcing the value of continuing to invest in these areas.

When exploring new Profit Pools, ROI projections are vital for decision-making. Organizations must estimate the expected returns from entering new markets or segments and compare these against the required investment. This analysis should include a consideration of the time horizon for achieving positive ROI, as new ventures often require significant upfront investment with returns realized over a longer period. Capital efficiency, measured by the ratio of capital invested to revenue generated, is also important to ensure that new ventures do not disproportionately tie up resources that could be used more effectively elsewhere.

In conclusion, a rigorous analysis of these key metrics provides organizations with a comprehensive understanding of the profitability and potential of both new and existing Profit Pools. This approach enables informed strategic decision-making, ensuring resources are allocated to the most lucrative segments to drive growth and profitability.

Best Practices in Profit Pools

Here are best practices relevant to Profit Pools from the Flevy Marketplace. View all our Profit Pools materials here.

Did you know?
The average daily rate of a McKinsey consultant is $6,625 (not including expenses). The average price of a Flevy document is $65.

Explore all of our best practices in: Profit Pools

Profit Pools Case Studies

For a practical understanding of Profit Pools, take a look at these case studies.

Retail Profit Pools Analysis for High-End Fashion Brand

Scenario: A high-end fashion retailer in the competitive North American market is struggling to maximize its Profit Pools.

Read Full Case Study

Profit Pool Analysis in Maritime Logistics

Scenario: The company, a mid-sized player in the maritime logistics industry, is facing stagnating profits despite increasing volume of cargo shipments.

Read Full Case Study

Electronics Retail Market Profit Pool Analysis for High-Tech Gadgets

Scenario: The organization is a leading retailer in the high-tech electronics space, struggling to maximize its Profit Pools amidst fierce competition and rapidly changing consumer preferences.

Read Full Case Study

Profit Pools Analysis and Strategy Development for a Global Tech Firm

Scenario: A global technology firm, despite having a strong market presence and product portfolio, has been witnessing stagnant growth in its Profit Pools.

Read Full Case Study

Luxury Brand Global Market Penetration Strategy

Scenario: A luxury fashion firm is grappling with stagnating profits in a highly competitive global market.

Read Full Case Study

Telecom Market Profit Pool Analysis in North America

Scenario: The organization is a mid-sized telecom operator in North America grappling with stagnating growth in a highly competitive market.

Read Full Case Study




Flevy is the world's largest knowledge base of best practices.


Leverage the Experience of Experts.

Find documents of the same caliber as those used by top-tier consulting firms, like McKinsey, BCG, Bain, Deloitte, Accenture.

Download Immediately and Use.

Our PowerPoint presentations, Excel workbooks, and Word documents are completely customizable, including rebrandable.

Save Time, Effort, and Money.

Save yourself and your employees countless hours. Use that time to work on more value-added and fulfilling activities.




Read Customer Testimonials

  •  
    "As a consulting firm, we had been creating subject matter training materials for our people and found the excellent materials on Flevy, which saved us 100's of hours of re-creating what already exists on the Flevy materials we purchased."

    – Michael Evans, Managing Director at Newport LLC
  •  
    "I have used FlevyPro for several business applications. It is a great complement to working with expensive consultants. The quality and effectiveness of the tools are of the highest standards."

    – Moritz Bernhoerster, Global Sourcing Director at Fortune 500
  •  
    "My FlevyPro subscription provides me with the most popular frameworks and decks in demand in today’s market. They not only augment my existing consulting and coaching offerings and delivery, but also keep me abreast of the latest trends, inspire new products and service offerings for my practice, and educate me "

    – Bill Branson, Founder at Strategic Business Architects
  •  
    "Flevy.com has proven to be an invaluable resource library to our Independent Management Consultancy, supporting and enabling us to better serve our enterprise clients.

    The value derived from our [FlevyPro] subscription in terms of the business it has helped to gain far exceeds the investment made, making a subscription a no-brainer for any growing consultancy – or in-house strategy team."

    – Dean Carlton, Chief Transformation Officer, Global Village Transformations Pty Ltd.
  •  
    "I have used Flevy services for a number of years and have never, ever been disappointed. As a matter of fact, David and his team continue, time after time, to impress me with their willingness to assist and in the real sense of the word. I have concluded in fact "

    – Roberto Pelliccia, Senior Executive in International Hospitality
  •  
    "The wide selection of frameworks is very useful to me as an independent consultant. In fact, it rivals what I had at my disposal at Big 4 Consulting firms in terms of efficacy and organization."

    – Julia T., Consulting Firm Owner (Former Manager at Deloitte and Capgemini)
  •  
    "[Flevy] produces some great work that has been/continues to be of immense help not only to myself, but as I seek to provide professional services to my clients, it give me a large "tool box" of resources that are critical to provide them with the quality of service and outcomes they are expecting."

    – Royston Knowles, Executive with 50+ Years of Board Level Experience
  •  
    "As a small business owner, the resource material available from FlevyPro has proven to be invaluable. The ability to search for material on demand based our project events and client requirements was great for me and proved very beneficial to my clients. Importantly, being able to easily edit and tailor "

    – Michael Duff, Managing Director at Change Strategy (UK)



Download our FREE Strategy & Transformation Framework Templates

Download our free compilation of 50+ Strategy & Transformation slides and templates. Frameworks include McKinsey 7-S Strategy Model, Balanced Scorecard, Disruptive Innovation, BCG Experience Curve, and many more.