How would you approach a client whose profitability is declining?

Use the profitability equation as the spine, and narrow methodically rather than guessing.

Profit = Revenue - Costs. Establish first which side moved, and by how much. This single split determines everything that follows.

• If revenue fell: is it price or volume? Falling volume points at demand, competition or distribution. Falling price points at discounting, mix shift towards cheaper products, or competitive pressure.
• If costs rose: are they fixed or variable? Rising variable cost per unit points at input prices or efficiency. Rising fixed cost points at overhead, capacity added ahead of demand, or a step change such as a new facility.

Then segment. An aggregate decline is usually concentrated: one product line, one region, one customer segment. Finding where it is concentrated is often the entire answer.

Finally, establish whether it is internal or external. If competitors are affected equally, it is a market issue and the response is different from a company-specific problem.

Note: Ask early whether the decline is in absolute profit or margin, and whether it is one year or a trend. Those two clarifying questions frequently reshape the whole case.