"Assess the profitability of your product lines.Your next job is to determine which of your products or services are making money (or not), and why...Activity-Based Costing will give you a more accurate picture than you or your predecessor may have had in the past."
The new leader's guide to diagnosing the business - Harvard Business Review February 2008 by Mark Gottfredson, Steve Schaubert, and Hernan Saenz.
"The top 20% of customers typically account for 120% of profit. Winning with the top 20% will kill your competitors. Not dealing with the bottom 20% will kill you."
Killer Customers - Larry Selden and Geoffrey Colvin.
Profitability Analysis with ace on-demand
Profitability Analysis and in particular Customer Profitability is important in identifying where the company is really making money or indeed, where it could be losing money. It also helps you to focus your efforts on improving profitability from certain customer segments while ensuring non-profitable customers and/or segments are exposed to management.
With ace on-demand you can create very detailed cost models, in fact, you may wish to have high level activities defined in your model but get down into the fine detail for products/service or customers. With ace on-demand you can have all products, service and customers defined with each having full cost assigned to them as well as all revenue. All this data can then be easily exported to data cubes for detailed analysis and reporting.
An example of where ace has been used to perform profitability analysis, please see the screen shot below. This is a dummy model based on real implementations for our University clients. The fundamental calculation we make is the fully burdened cost-per-student-per-unit when this is combined with the revenue-per-student-per-unit this provides a very granular view of profitability for every student and every unit taught at the university.
For these models we would also "tag" various items or use the model structure to allow more detailed multi-dimensional reporting. This could include:
- Student Types
- Courses
- Schools
- Facilities