In today’s increasingly complex, competitive, and fast-changing business environment, achieving profitability requires rigorous discipline — especially in the relationship between consumer goods companies and their distribution channels, whether direct or indirect. While significant progress has been made in measuring the production costs of product portfolios — many companies tracking costs down to the second decimal — there is still limited visibility into the actual profitability of channel sales and individual customers. This remains a striking contradiction.
In go-to-market and commercial effectiveness projects, it’s still common to find companies struggling to structure even a basic customer-level P&L. Without this, leadership lacks a critical tool for managing performance and making strategic decisions.
To help you build this vision, here are some key steps:
- Map All Customer Touchpoints
Start by identifying all touchpoints between your company and the customer throughout the order cycle — commercial, financial, logistics, service, technology, and others. Mapping the customer journey helps clarify where and how costs are incurred.
Attention Point: The greatest challenge is ensuring all related costs are accurately recorded in the ERP system as they occur. This demands discipline, standardized processes, training, and effective tools.
- Segment Your Customer Base
Customer segmentation should follow clear and objective criteria. Common examples include:
- Sales Channel: Direct (e.g., retail) or indirect (e.g., distributors, wholesalers). Each channel typically requires further segmentation, with different cost structures and profitability expectations.
- Revenue Concentration: Key accounts usually represent a large share of revenue and often receive differentiated service levels — resulting in higher costs.
- Drop Size: The average delivery size per customer (volume or order quantity). Larger drops may optimize logistics routes, reducing the cost per unit delivered.
- Service Level Requirements: Customized demands in sales or logistics (e.g., special palletization, exclusive deliveries, scheduling) can increase operational complexity and cost — often underestimated if not properly mapped.
- Allocate Revenues and Costs per Customer
- Revenue: Consider total billed revenue per customer during the analysis period. Focus on net revenue, accounting for:
- Commercial discounts
- Logistical discounts (e.g., centralized deliveries)
- Returns, bonuses, and rebates based on performance
Attention Point: Net revenue is frequently miscalculated. Poor control over bonuses and incentives is a common weak spot for both suppliers and retailers.
- Costs and Expenses: Include all direct and indirect expenses linked to customer interactions. Begin with direct costs such as:
- Salesforce time and incentives
- Promotional investments
- Delivery costs
- Merchandising
- Data sharing tools
Then allocate indirect costs (e.g., telemarketing, sales platforms, marketing, credit analysis, invoicing, and customer support).
Tip: Use simple, objective, and consistent allocation criteria. This makes historical comparisons easier and supports better decision-making.
- Calculate Customer Profitability
Customer margin equals net revenue minus total allocated costs and expenses. Use a 12-month period or a weighted moving average to avoid distortions from seasonality or one-off events.
Insight: The Pareto principle usually applies — around 80% of sales often come from 20% of customers. A deeper focus on this high-impact group typically drives the best returns.
For low-margin or unprofitable customers, create tailored action plans. These plans should be led by the sales team but developed collaboratively across departments. Open and transparent communication with the customer is key to success.
Make Profitability a Core Business Discipline
As it´s a critical topic for a company’s financial health, customer-level profitability should be treated as an ongoing, evolving process — and a permanent item on the leadership agenda.
Wishing you strong sales and solid profits!
Rodrigo Catani is head at Gouvêa Consulting.
*This text reflects the author’s opinion and does not necessarily reflect the position of Mercado&Consumo. This text was translated with AI.
Image: Envato