Professional Documents
Culture Documents
Figure 1: Comparison of supplier gross and net margins based on their location
(%) Example
50
Gross
Net
45
40
35
30
25
20
15
10
5
0
Sweden
Taiwan Germany
United European
Kingdom Union
(Other)
China
USA
Japan
France
Margin %
Revenue
Net margin
30
25
20
15
10
Gross margin
5
0
-5
-10
10
.........
# Customers
Using information
to out-think the
competition
Example
9,600,000
8,000,000
6,400,000
4,800,000
3,200,000
1,600,000
USD
518
508
108
519
211
644
663
351
1973
849
857
889
Product
number
Customer profitability
A $5B consumer goods company has
an ambitious growth agenda. Through
its profitability reports, the company
discovered that 20 percent of its customer
base generated 80 percent of its profits,
15percent generated 30 percent of the
profits, while 50 percent produced zero
profit, and 15 percent caused losses of
10percent.
By modeling different business scenarios, the
product and sales managers of the company
learned that:
Many high-revenue customers were
purchasing unprofitable products. The level
of revenue they produced hid the fact that
the net margin on servicing them was low
or nonexistent.
If zero-margin customers could be made
even a little more profitable, the companys
profits would increase by
20-30 percent.
The managers strategized on ways to:
Incent high-revenue customers to buy
a more profitable mix of products
and services.
Example
669
700
600
500
513
451
447
400
318
380
300
553
529
496
Jan
Feb
Mar
Apr
May
320
Jun
Jul
Aug
349
373
Sep
Oct
Nov
Dec
High-level view:
How to analyze
profitability
10
General ledger
Functional structure
Value chain
(VC)
Assigning
functional process
to VC process
Commercial
structure
VC (cost) drivers
Commercial costs stats
and income transactions
Functional KPI
Source: Accenture, January 2014
Process KPI
Product
structure
11
Customer profitability P&L and gross margin allocation based on a traditional profitability calculation approach ()
1
Total
Revenue
100
80
120
90
105
495
Product cost
30
25
50
25
40
170
Gross margin 1
70
55
70
65
65
33.8
28.2
56.4
28.2
45.1
Net margin
36.2
26.8
13.6
36.8
19.9
36
34
11
41
19
133.3
Customer profitability P&L and net margin based on a profitability analytics methodology ()
Process drivers
Revenue
Sales and administration costs
Number of visits
Gross margin 1
Total
100
80
120
90
105
495
20
10
25
20
80
70
95
70
99
Customer support
12
13
Marketing
Number of campaigns
1.5
1.25
2.5
1.25
Gross margin 2
66.5
63.75
79.5
61.75
88
Product cost
30
25
50
25
40
Gross margin 3
36.5
38.75
29.5
36.75
48
Overhead
% of product cost
10
12
10.5
IT
1.2
1.6
Net margin
25.3
29.75
15.5
26.75
35.9
25
37
13
30
34
12
170
133.2
Business Processes
Pricing of services
Cross analysis
Benchmarking
Cost
Transparency
Customer
Product
Customer segmentation
Product costs
Pricing
13
Activity-based
costing versus
profitability
analytics
methodology
14
Product processes
4
Allocations assigned to operational and
supporting process costs can be traced back to
individual products and customers
Sales processes
Customer processes
Cost
drivers
Products
Sales items
Customers
Profitability
Profitability
Profitability
6
Business rules describe how operational
processes are supported
Individual products
Sales items
Individual customers
15
16
10
18
19
About Accenture
David A. J. Axson
David is a Managing Director Accenture
Strategy, based in Cleveland, USA. David has
more than 27 years of consulting, industry
and entrepreneurial experience working
with clients and enterprises in more than
40 countries. An accomplished author,
David specializes in advising clients on the
challenges of doing business in an uncertain
and volatile global marketplace focusing
on strategy, performance management, risk
management and analytics and guiding
them on their journey to high performance.
Kurt Rosander
Kurt is responsible for Accenture Analytics
for the Nordic region, within the Bank
and Insurance group. Based in Stockholm,
Sweden, Kurt brings over 25 years of
consulting, industry and entrepreneurial
experience in analytics, profitability analysis
and modeling, process management and
enterprise performance management (EPM).
Having published numerous articles and a
book on activity-based management (ABM),
Kurt has been actively focused on the
question of profitability management for the
last 21 years and implemented over 60 cross
industry and cross region EPM assignments.
Disclaimer
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capacity. Opinions expressed herein are
subject to change without notice.
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