Major organisations sell and service a range of products and services to a diverse mix of products.

Such companies must understand the real cost and profitability of sales activities, and avoid being too simplistic in their approach. Without a mature understanding the business leaders cannot make informed decisions to steer the performance of the organisation.

Gain insight

Profitability and cost analysis is carried out to:

  • provide strategic insight
  • inform key decisions such as pricing thresholds
  • decide which products to promote or retire
  • strengthen and segment customer relationships
  • inform investment decisions to reduce process/channel cost
  • drive improved customer experience

These decisions require insight, consideration and time to implement.

They should be supported by a clear baseline against which to measure performance improvement.

In the dark

Without profitability and cost analysis management is in the dark. One analysis showed 20% of a company’s branches were delivering 60% of the profits and 20% of customers were not even profitable. Before the analysis was carried out management had not known that. It could not take action.

Decision making requires granularity

The survey reveals:

  • 85% carry out analysis on cost and profitability

However:

  • 32% says that profitability and cost analysis is available for distribution channels
  • 46% say profitability and cost analysis is available for customers
  • And 83% say traditional profit and loss reporting aligned to the organisation structure is the primary basis for profitability and cost analysis
  • 66% said apportionment was used as the basis of allocation of shared costs. A driver based-approach would provide a more accurate and informed picture.

But organisational structures will not provide an effective basis for profitability and cost analysis. Why? Because those structures do not provide enough granularity over the key decision making dimensions. 

About Jamie Lyon, lead author, ACCA

About Faye Chua, lead author, ACCA
About Faye Chua, lead author, ACCA
About Faye Chua, lead author, ACCA
About Faye Chua, lead author, ACCA
About Faye Chua, lead author, ACCA

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