How to find which product or customer makes you the most margin
Selling more doesn't always mean earning more. A simple method to find where your company makes and loses money.
Selling a lot isn't the same as earning a lot
Almost every company knows which product sells the most. Far fewer know which one leaves the most money after all costs. They rarely match.
A customer who buys a lot but demands discounts, returns orders and uses up support hours may be costing you money. A product that sells little but never causes problems may be what keeps the business going.
What data you need (and probably already have)
Calculating real margin doesn't require a new system. It's usually enough to combine what already exists: sales by product and customer (ERP or invoicing), the cost of each product, discounts given, returns and, if you can, the time your team spends on each customer.
The problem is almost never missing data, but that it lives in different places and nobody puts it together.
The calculation, step by step
1. Start from the real selling price, not the list price: subtract discounts and promotions.
2. Subtract the direct cost of the product or service.
3. Subtract what returns and the shipping you absorb cost you.
4. Allocate service costs: if a customer takes 30% of support hours, they carry 30% of that cost.
Fictional example: two customers bill the same per year. The first gets a 15% discount and causes many incidents; the second, neither. With the same revenue, the second can leave you twice the margin.
What to do with the result
Rank products and customers by margin, not by sales. Three groups usually appear: the ones that sustain the business (look after them), the ones that earn little but can improve (review prices or terms) and the ones that lose money (decide whether they're worth keeping).
It isn't about dropping customers, but about deciding with information: renegotiating a discount, charging for a service you give away today, or putting more sales effort into what is truly profitable.
Doing it once, or having it always
This analysis can be done once in a spreadsheet. The value is in repeating it every month without manual work, to see how margin changes when you change prices or terms.