—Guide
Customer and Product Profitability: Finding Where Your Business Loses Money
How to measure profitability by customer, product and channel, the costs that usually get missed, and what to do about unprofitable business.
Most businesses know their overall margin. Fewer know which customers, products or channels actually make money. Often, a few large customers or popular products quietly lose money once all costs are counted. This guide explains how to find them.
Start With Gross Margin
Calculate revenue less direct costs for each product, customer or channel. This is the starting point, but it's rarely the full picture.
Add the Costs That Get Missed
- Discounts, rebates and promotional support.
- Freight and delivery.
- Returns and damages.
- Payment terms — the cost of funding slow payers.
- Sales and service effort.
- Platform or marketplace fees.
- Customisation and special handling.
Contribution by Segment
After allocating these costs, you get the contribution each segment makes to overheads and profit. Rank customers and products by contribution, not revenue.
What You'll Often Find
- A small number of customers generate most of the profit.
- Some large customers have negative contribution after discounts and payment terms.
- Some products sell well but lose money after returns and freight.
- Some channels, like certain marketplaces, cost more than they appear.
What to Do
- Reprice or renegotiate terms with unprofitable customers.
- Reduce discounts or change how they're given.
- Rationalise products that consistently lose money.
- Shift effort to more profitable channels.
- Reduce the cost to serve — minimum order sizes, delivery charges.
Keep It Practical
Perfect cost allocation isn't necessary. Reasonable allocations that show direction are enough to act on.
Getting Help
Think Filing analyses customer and product profitability and helps businesses act on the findings.