Product Profitability Analysis Example

Product Profitability Analysis: Introduction

The profitability of the commodity must always be taken into consideration. Companies are in love with the launch of new goods and consumer loyalty, but not all goods make the same impact. One should start by sorting annual sales by product in decreasing order to analyze product profitability. Also, the top 20% produces 80% of the revenue – 800 Sku produces a meager 20% of revenue in a company that has 1,000 Sku's (Borin & Farris, 1990). The cost of buying, shipping, production, and marketing can be related to one another, and the effect can be massive. One should apply the same above-listed cost factors to hit the product's margins and boost the study. This paper looks at the best products and determines if each of them has enough net income.

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In this case, Burnside is being analyzed for product profitability. The goal is to pinpoint the most profitable product. Burnside sells products such as tables, sheds, trellises, founts, and outbuildings, as well as other related products. This analysis includes 19 different products of Burnside, and each one of them has its detailed information. It is based yearly. The given details are descriptions, types, costs, prices, on-hand quantities, and sales per year. The goal is to calculate totals and find out the best profitable product while presenting a simple overview of the company.

Business Data

The given data is detailed and provides specific information about products, types, costs, prices, on-hand quantities, and sales per year. These are the necessary information while finding out the most profitable product and reviewing the Burnside performance. In this case, total costs, total revenue, and total net income data were calculated with necessary excel formulas and added to the table. While analyzing the data, more information makes the analysis more comfortable and more accurate.

Analysis Results

Most businesses make a significant error that they rely so heavily on growing profits that they ultimately lose revenue. Maladministration, unreasonable supervision, and high freight or distribution costs will bring those out of business even though they meet the profit objectives. Revenue is not essential (Howell & Soucy, 1990). What important is profitability.

The results of the analysis indicate that the most profitable product is the 8' x 10' Aluminum Outbuilding with $132.000 net income. The least profitable product is 12' Square Pine Gazebo with the -$105.500,00 net loss. The total cost is $2.943.526,13, total revenue is $3.169.003,21, and the total net income is $225.477,08. On the other hand, quantities make a huge impact on the total cost. Besides, markup percentages are crucial, too, while calculating the net income. The table below presents the detailed analysis results.

Table 1. Burnside Business Data Analysis

Product Profitability Analysis: Conclusion

A strategy can be developed to increase each of these right products' margins. Using the above criteria and analysis and selling the best products to the best customers is possible to achieve. One can consider the margins for the less than 80% of products that are available and consider seriously eliminating or at least reducing the amounts or price of those products unless they enhance relationships with the significant customers or emerging brands. Profitability will be dramatically increased by carrying out these analyzes and taking the necessary measures to rectify and improve margins. It is a relatively straightforward process that produces extraordinary results.

References

Howell, R. A., & Soucy, S. R. (1990). Customer profitability. Management Accounting, 72(4), 43-47.

Borin, N., & Farris, P. (1990). An empirical comparison of direct product profit and existing measures of SKU productivity. Marketing, 8.