4 Ways profit breakdown can benefit your business

Profit breakdown by the customer – Sales by customer less cost of sales by the customer gives you the gross margin of the customer excluding any overheads. The breakdown helps the business to review and evaluate which business customer is profitable. Research shows that in most businesses 20% of the customers make up 80% the profit of the business. Financial data alone is not the basis for which decisions should be made to evaluate the profitability of the customer. Knowing your customers and their industry together with the buying trend can help you make an informed decision on the growth of their business. Some customers are also pain-free and do not cost much to manage their account. Although they don’t buy much they pay on time and have a few queries. To keep up to date data on customers my suggestion is to keep notes on customers on your customer accounts on your applications. This keeps a diary of communication queries that have come up on your customer within the trading period.

Product profitability breakdown. Important to know how much profit is made on the various products. This helps when the company decide to do away with certain products and also help review their product offering over a period of time. Again the statistics alone is not enough to make an informed decision. The availability of the product, the environmental and social impact which is a big news subject these days, all help in making decisions.

Supplier profitability breakdown – It is handy to know what are the profit numbers you are making per supplier. Your application will have to track sales made from suppliers products and the cost of sales of the products plus shipping from the suppliers. This gives you the profit of supplier A, B, etc. The question is, is it profitable to keep receiving supplies from supplier A or is it worth finding another supplier and stop making losses or despite the loss from supplier A you are making  enough the profit from supplier B which also covers the loss of supplier A, besides supplier A’s product is complementary product for supplier B. Important strategic decisions for your business giving you an advantage over your competition.

Department or sub-business profitability. It is worth knowing how the different parts of the business are performing. Transfer pricing may come into play here but once you use a fair system you have nothing to worry about. Different part of the business profitability helps makes a decision on which part is doing well which is not. The successful part of the business can be emulated on other parts of the business for the same success. It also helps make decisions about which parts to get rid off.