Margin by Segment
Allocates serving costs honestly, since unallocated overhead makes every segment look profitable.
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Running it, start to finish
- Check the segments differ in economics, not just in name.
- Estimate serving costs from a real proxy and state them as estimates.
- Have anything driving a major decision reviewed by your accountant.
What you get back
The output this produces, every time.
- Allocates serving costs, which are usually the difference between a profitable segment and an unprofitable one.
- Refuses to allocate overhead by revenue, which is circular and misleads in a predictable direction.
- Leaves genuinely unallocatable costs separate rather than distributing them for false precision.
Getting better results
Where this usually goes wrong, and how to avoid it.
- Estimate serving costs rather than skipping them. A stated estimate from ticket counts or logged hours beats leaving them out, which guarantees every segment looks fine.
- Never allocate on revenue. It is circular and makes large segments look expensive regardless of what they actually consume.
- Remember the overhead when cutting. Dropping a low-margin segment removes its contribution and leaves the fixed costs it was helping to cover.
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Written for The AI University. Every prompt in this library is original work — authored, tested and revised here, not collected from elsewhere. 365 of them, free with an account.