Overview

Customers are the source of financial value to increase shareholder and owners’ economic value and wealth. But today customers view suppliers’ products and standard service-lines as commodities. Therefore suppliers must provide differentiated services to different customer segments. The sales volume of high demanding customers is not proportional to their profit level because they cause extra expenses from their suppliers.
 
What this means is that reporting should be below the product and standard service-line gross profit margin line. It should calculate and report the expenses for distribution channels, marketing, selling, and customer services. The result should be a profit and loss statement for each customer.
 
Sadly, most CFOs do not bother to report this. Further, the incentive compensation for the salesforce is typically exclusively based on 100% sales volume. It should be a blend of both sales volume and customer profit (e.g., 60% sales, 40% profit). This then aligns the salesforce with shareholder and owner financial value wealth creation.

Learn More

• Gary Cokins article titled “Measuring and Managing Customer Profitability”