Position · Diagnose, Explore

Profit pool analysis

Maps where the money in a value chain actually sits, which is rarely where the revenue sits. Businesses routinely compete hardest in the step of their own chain that earns least.

Stage

01 Diagnose, 02 Explore

Works at

Corporate, Business

Maturity

Scaling → Large organisation

Time

Two to three days with the filings

What it is

A sizing of total industry profit by step in the value chain, drawn against revenue at each step. The gap between the two is the point: a step can hold a third of the revenue and a twentieth of the profit. The original work found that profit pools migrate along a chain over time, usually towards whichever step controls the customer relationship or a scarce input.

The chain, end to end: Every step from raw input to end customer, including the ones you do not participate in. A chain drawn only to the edge of your own business cannot show you where the money went.
Revenue by step: How much money passes through each step. This is the easy half, and it is the half people mistake for the answer.
Profit by step: Operating profit pooled at each step across all players. Filed accounts for the listed ones and benchmark margins for the rest gets you close enough to be useful.
The gap: Where revenue share and profit share diverge. A step holding thirty per cent of revenue and five per cent of profit is a step to serve, not a step to own.
Migration: How the pools have moved over five years. The direction matters more than the current picture, because a strategy is decided against where the money is going.
Your position: Which steps you occupy and what share of each pool you take. Most businesses find they compete hardest in the step that earns least.

The mistake people makeSizing revenue and calling it a profit pool. Revenue tells you where the activity is and profit tells you where the power is, and in most chains those are in different places.

What it’s forYou are deciding where to play in a chain you do not currently own all of.

What it’s not forYou sit in a single step of a chain you cannot move within. Then it tells you something true and unusable.

How you run it

Draw the whole chain, including steps you do not touchThe answer is usually in a step nobody has thought of as yours. A chain that stops at your own boundary cannot contain it.
Size revenue at each step firstIt is the tractable half and it sets the denominator. Be explicit about double counting, because one step's revenue is the next step's cost.
Estimate operating margin per stepFiled accounts for the listed players, benchmark ranges for the rest. Being roughly right across every step beats being precise about one of them.
Draw revenue and profit on one pictureWidth for revenue, height for margin. The divergence becomes visible in a way that no table makes it.
Run it back five yearsWhere the pool is heading decides the strategy. A snapshot only tells you where the money has already been.

The prompt

Two ways to run it

Run this tool in your own Claude

The short prompt starts your partner against the library on your disk. The long one carries everything with it and needs nothing installed.

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🔒 Prompt locked

Everything above is free — what this tool is, what it is for, what it is not for, and how to run it as a workshop. Three tool prompts a month are free with an account; beyond three, and for the printable canvas, it is the paid part.

See plans — from £19 a month

Your playbook

It lands in the earliest stage this tool suits. Move it on the Playbook page.

You’ll need

The value chain from raw input to end customer, in steps
Revenue and margin by step, from filings, listed comparables or benchmarks
Where your own business currently earns, and where it spends

You’ll end up with

Profit by step, sized and drawn against revenue by step
The steps where margin is concentrating, and the direction it is moving
A view on which steps you could credibly move into

Runs well with

Acquisition screen and synergy thesis Adjacency map AI opportunity map AI risk classification and governance