Sales are not profit
Revenue tells you what was sold, while profitability requires understanding the cost and expenses behind that revenue.
Product profitability
Compare selling price with product cost, discounts and relevant expenses to understand margin more clearly.
Branch profitability
A high-sales branch may also carry higher rent, payroll and operating expenses.
Revenue should therefore be compared with branch-specific costs.
Cost centres
Cost centres help allocate expenses to departments, branches or projects instead of leaving all costs in one company-wide total.
Why can a best seller still be a problem?
Heavy discounting, poor costing or waste can make a strong-selling item surprisingly weak in profitability.
What should management monitor?
- ✓ Sales by product.
- ✓ Gross margin.
- ✓ Product cost.
- ✓ Discounts.
- ✓ Sales by branch.
- ✓ Branch expenses.
- ✓ Profitability by cost centre.
Why does ERP help?
Profitability analysis becomes stronger when sales, inventory, costing and expenses come from the same system instead of separate spreadsheets.