Margin Erosion Tracker
Tracks gross and net margin trends period over period, identifies the root causes of margin decline, and calculates the intervention timing needed to prevent margins from crossing critical thresholds.
Risk - Margin Erosion Tracker.xlsx
Excel (.xlsx) — No macros — Works in Excel, Google Sheets, LibreOffice
What This Spreadsheet Solves
- Margin decline happens gradually and goes unnoticed until it is severe
- Root cause of margin erosion is unclear (cost, pricing, or mix shift)
- No threshold-based alerts for when margins need immediate attention
- Historical margin trends are not tracked systematically
- Intervention decisions are reactive instead of proactive
Who This Is For
- CFOs monitoring overall business profitability trends
- Product managers tracking margin per product line
- Operations leaders identifying cost-driven margin compression
- Business analysts preparing margin health reports
Inputs
- textPeriod (Month/Quarter)
- $Revenue
- $Cost of Goods Sold
- $Operating Expenses
- %Product/Service Mix (%)
Outputs
- Gross margin and net margin per period
- Period-over-period margin change (absolute and percentage)
- Erosion rate (trend slope)
- Root cause attribution (cost increase vs price decline vs mix shift)
- Months until margin crosses minimum threshold at current erosion rate
How Calculations Work
The tracker computes gross margin (revenue minus COGS divided by revenue) and net margin (revenue minus all costs divided by revenue) for each period. A linear regression on the margin series determines the erosion rate (slope). Root cause analysis decomposes margin change into three components: unit cost changes, effective price changes, and product mix shifts. The model extrapolates the erosion trend to estimate when margins will cross the configurable minimum threshold.
Example Use Case
Scenario: Last 6 quarters: gross margin declined from 48% to 41%. Revenue grew 12% over the period, but COGS grew 24%. Product mix shifted 8% toward lower-margin services. Operating expenses remained flat.
Result: Erosion rate: -1.17 percentage points per quarter. Root cause: 60% attributed to COGS increase, 30% to mix shift toward lower-margin services, 10% to slight average price decline. At current rate, gross margin hits the 35% threshold in 5.1 quarters. Intervention needed within 2 quarters to reverse the trend.
What You Get — 5 Sheets
Technical Details
Frequently Asked Questions
How many periods of data do I need?
A minimum of 4 periods is needed for meaningful trend detection. Six or more periods produce more reliable regression results. Quarterly data over 18+ months is ideal.
What is a normal erosion rate?
Any consistent negative slope warrants attention. Erosion of more than 1 percentage point per quarter is aggressive and typically requires immediate investigation.
How does root cause attribution work?
The model isolates three effects: price effect (change in average selling price), cost effect (change in unit costs), and mix effect (shift in revenue share between high-margin and low-margin products). The sum of these effects equals the total margin change.
What should the minimum margin threshold be?
Set it based on your business model. Gross margin minimums vary by industry: SaaS (70%+), manufacturing (25-35%), services (40-60%). The threshold should be the point below which the business cannot sustain operations.
Can I track margins per product line?
Yes. Enter revenue and COGS per product in the INPUT sheet. The LOGIC sheet calculates margins per line and identifies which products are driving overall erosion.
Download Margin Erosion Tracker
Ready to use immediately. Enter your data in the INPUT sheet, see results in OUTPUT.