Please is there a way to set a report that will give profitability of each customer? Mostly in a trading company that maintain customers?
There is no such report. How would you define profitability per customer? How would you allocate overhead expenses to individual customers? How would you allocate employee benefits to individual customers?
I think the report will be limited to the inventory items supply to the customer. The sales and cost of the items per customer to give idea.
You can only setup a custom report with the industrial margin for the inventory item sold.
Via the Customer’s activity: product sold v’s the cost of the product.
The operational costs of the business aren’t relatable or transferable to the Customer per se.
That was my point. Without those costs, you are only looking at gross margin. Gross margin can be positive and still be unprofitable. Further, unless you are only selling inventory items, there is no way to determine any measure of profitability except through either tracking codes (one per customer) or distinct income and expense accounts in all categories for individual customers.
Yes, and that is the only perspective that you can use when looking at the topic’s initial request “profitability of each customer”. Other costs such as rent, insurance etc are unrelated to the customer, therefore aren’t a consideration when considering the customers profitability.
If the business decides to a rent a premises for 100 instead of 200, then the customer is not responsible for that in relation to their profitability contribution to the business.
I have no idea what this means, how can a positive also be a negative (unprofitable).
I did not say a positive could be a negative. I said gross margin can be positive and still be unprofitable. As you know very well, gross margin does not equal profit. It accounts only for revenue and costs attributable directly to sales (such as price received for an inventory item less its purchase cost).
My point, clearly made, was that it is not appropriate to speak of profitability for a single customer because, under typical accounting conditions, it is unknowable. Gross margin for a customer is knowable, but as you already acknowledged, that isn’t what was originally asked about. Nevertheless, when I raised the issues about what can be known, the original poster clarified his request as “sales and cost of the items per customer,” in other words, gross margin.
Why not ?, If a customer’s activity produces a known revenue and that is in excess of the known related costs, then that is profitability. All revenue and costs in relation to the customer are totally knowable under typical accounting conditions, that is, there are no unknown variables.
Furthermore, profitability equates to dollar value whereas margin relates to percentage.
From Wikipedia : Gross margin is the difference between revenue and cost of goods sold (COGS) expressed as a percentage. Gross Margin is often used interchangeably with Gross Profit, but the terms are different. Gross Margin is a percentage value, while Gross Profit is a monetary value.
So getting back to the opening post, their request was about " a report that will give profitability of each customer". Also, I mis-read your usage of gross margin as meaning gross profit, that was my regrettable mistake.