Although often overlooked, an essential element of the profit breakdown
Revealing true customer profitability and the customer contribution to your shareholder value assumes a correct view on the ‘cost to serve’ that customer. Equazion enables you to model both price leakages and specific costs related to serving your customer. You can define any type of cost at any level of your personal product and customer hierarchy. The model rolls up revenue, price leakages and costs along all branches of a user-defined hierarchy. At each level, one can analyze the resulting profit waterfall.
In this way, Equazion allows you to model product and customer costs in line with business reality.
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Channel marketing costs could remain, even though some customers are leaving.
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High picking costs due to unfavourable customers' ordering behaviour should directly affect the individual customer's margin but it shouldn’t blur the profitability of the product being picked.
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Go beyond traditional cost elements
Typical customer cost-to-serve elements include logistics picking, packing and shipping, sales costs, marketing efforts, etc, resulting in a customer's net margin. But you can go beyond the cost-to-serve and also model the cost of financing inventory and customer receivables. This will provide you with a view on the residual income or the economic value created by each customer, sales organization, channel or any other customer grouping. Moreover, on each of the margin levels and on each of the cost-to-serve elements, Equazion allows you to benchmark a customer with a selection of peers.
