Logistics and Supply Chain Management, 6th Edition

Customer profitability analysis

One of the basic questions that conventional accounting procedures have difficulty answering is: ‘How profitable is this customer compared to another?’ Usually customer profitability is only calculated at the level of gross profit – in other words the net sales revenue generated by the customer in a period, less the cost of goods sold for the actual product mix purchased. However, there are still many other costs to take into account before the real profitability of an individual customer can be exposed. The same is true if we seek to identify the relative profitability of different market segments or distribution channels.

The significance of these costs that occur as a result of servicing customers can be profound ...