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Product Profitability
Reveals Differences in Product Profitability
Our product profitability spreadsheet model includes the key cost centers to compute product profitability. It combines
direct costing and ‘activity-based costing’ to track cost of goods, royalties, and operating expenses for marketing, product
development, and customer support. The model tracks support costs in considerable detail, including number and size of support
cases and support issues, to identify areas for improvement that reduce support costs and improve customer satisfaction.
Not all costs have to be allocated to products to get a useful measure of product profitability. Product profitability analysis
often uncovers surprising results, especially in organizations with many products.
More Information About the Model
Show infoThis template estimates time-dependent 'contribution margin' for each product by subtracting from revenue the cost of goods and operating expenses that are directly attributable to each product. This analysis is often extremely useful for decision-making and profit optimization in many industries, including manufacturing, distribution, services, and software. It is often a 'sleeper'; that is, it can produce surprisingly novel and credible results that were not fully recognized and utilized before.
The model computes gross margin and gross margin % for each product by subtracting cost of sales, which consists of cost of goods and royalties.
- Cost of goods are optionally specified as cost per unit, cost as a % of revenue, or fixed costs for each product, or by all these methods.
- Royalties paid are optionally specified as cost per unit, cost as a % of revenue, or fixed costs for each product, or by all these methods.
The model computes contribution margin for each product by subtracting allocated operating expenses from gross margin. It tracks the following expenses.
- Marketing expenses
- Tracks marketing staff equivalent headcount allocated to each product, staff expense per head for several job levels, and total expense of marketing staff for each product.
- Tracks marketing programs expense by program and by product.
- Product development expenses
- Tracks equivalent number of development staff applied to each product, segmented by development groups; and staff expense per head by job levels.
- Tracks development program expenses, segmented by program and by product
- Tracks development overhead expenses
- Customer support expenses. Differences in support expenses across products often are not fully recognized, yet they can be major factors in determining profitability of some products.
- Tracks number of support calls/cases, segmented according to the amount of staff time applied to each call. Tracks staff expense per head by job level. Tracks utilization of support staff.
- Estimates support activity and expense segmented by support issues (such as installation, maintenance, application assistance, explaining poorly documented features). Tracking expense by support issues is a powerful method for identifying opportunities to improve customer satisfaction and product profitability.
Product profitability analysis should be just one factor in decisions about allocating resources among products.
- The most important limitation of product profitability analysis is that is must be balanced with strategic factors, such as revenue growth rate, and long-term potential of products that is not reflected in current profitability.
- Where results of the analysis differ from expert opinions, we recommend that you carefully explore the reasons for the discrepancy. The experts may not have an accurate perception of expenses, or the profitability analysis may have missed factors that the experts recognize.
Not all features are included in the Standard or Light versions.
Graphs | Cost of Goods | Royalties Paid | Product Contribution Margin | Marketing Expense | Product Development Expense |
Why Use Customizable Spreadsheet Solutions?
Customizable spreadsheet solutions fit your needs better than any conventional spreadsheet template. Simply specify information unique to your needs using our simple online form, select features from a broad selection, and download your spreadsheet solution in minutes.
Get Your Customized Spreadsheet in Minutes
The Spreadsheet is Easy to Use
Each Microsoft® Excel® spreadsheet solution contains · carefully organized layout · Excel comments on every variable table ·
Excel collapsible groups to hide detail until you want it ·
a worksheet with easy-to-read symbolic formulas that tell you what the model does.
Your customized spreadsheet solution makes it easy for you to change the following items in Excel:
- All the input data
- Starting date
- Text of all labels (e.g., products, departments, locations, etc.)
View a 2 minute introductory video about customized spreadsheet solutions!
New! International Formatting
During customization you can select from a set of international currency symbols and date entry and display formats. Once you create a free account, you can also set these options in your profile.
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