1Levels of analysis
How to allocate revenue and costs: by product, customer, channel.
Profitability Analysis
Profitability based on facts. We break the result down by product, customer, channel and operation and find what's pulling the business down.
Sound familiar?Overall profit hides loss-making segments, Nobody knows the real cost of serving a customer, Decisions are made based on turnover
Finance and Economics
How we work
1
2Margin and service
Direct costs plus the real cost to serve.
3Imbalances
Where the portfolio of customers and products pulls the result down.
4Decisions
Focus, price, terms of service, or dropping them.
Sound familiar?
- Overall profit hides loss-making segments.
- Nobody knows the real cost of serving a customer.
- Decisions are made based on turnover.
What usually lies behind it
Average profitability hides loss-making segments that survive at the expense of the rest. The most common distortion is the cost to serve: people's time that is formally never charged to an order but is spent on every customer.
What you get
Profitability by product, customer and channel.
A list of loss-making items with the reasons.
Options for decisions, with calculations.
The cost of waiting
If nothing changes
- 01
Loss-making lines will keep consuming resources.
- 02
Growing turnover will create a false sense of success.
- 03
Pricing will stay imprecise.
When you don't need this service
- The result can't be broken down because records aren't kept by business line. Management accounting comes first.
- You need a forecast. Then a financial model.
How to tell it worked
Knowing the margin
whether you can name the margin of any product without a separate calculation.
Loss-making items
whether they're known by name.
Decisions
what was changed as a result.
Questions
What period does the analysis cover?
Usually a year, to account for seasonality.
What should we do with loss-making customers?
First understand why: price, terms or cost to serve. Sometimes they can be made profitable; sometimes it's more honest to let them go.
Do we need automation?
Once it's clear what exactly to calculate. Otherwise the system will lock in the wrong method.
Related
Services: Pricing · Management Accounting · Business Model Review Materials: Unit economics for owners: seven numbers · Two sets of books: why an owner needs both
Related to this service
Article · 5 min
Unit economics for owners: seven numbers
You don't need a forty-tab financial model to tell whether a business is making money or imitating growth. You need seven numbers and honesty when you fill them in.
