The most concrete measure of portfolio decisions is profitability. However, "product profitability" is understood much less well in most businesses than is commonly believed; this is because overheads are allocated to products in proportion to their turnover, and this method systematically makes products that sell less but consume more resources appear profitable.
Scope
Multidimensional profitability: Measuring profitability across product, customer, channel, region, and period dimensions. A product may be generally profitable but unprofitable in a particular channel.
Actual cost allocation: The allocation of overheads using activity-based methods, proportionally to the resources actually consumed by the products.
Measuring the cost of complexity: Calculating the installation, transition, inventory management, regulatory, and documentation burden per product.
Pricing architecture: The price positioning of products within the portfolio relative to each other; consistency of the discount policy across the entire portfolio.
Price-volume-margin analysis: Measuring the impact of price changes on volume and total margin.
Exchange rate, inflation, and cost sensitivity: The immediate impact of changes in input costs on portfolio profitability.
In the real business world
A typical finding in manufacturing and distribution companies operating in Türkiye is this: approximately one-fifth of the products generate the vast majority of total profit; a significant portion hovers around break-even; and a certain portion regularly incurs losses. This third group is often preserved under the pretext that "customers demand it" or "it's necessary for the integrity of the catalog."
These justifications are sometimes true. However, whether they are true or not can only be known when the cross-selling effect is measured : if a customer doesn't buy that product, do they also not buy other products? If the answer is no, the justification is valid; if yes, the product is truly a burden.
Benefit to the customer
It is known which product is truly profitable.
Discount and pricing decisions are made taking margin effects into account.
Damaging products are identified and corrected or eliminated.
Cost increases are reflected in prices without delay.