Revenue tells you the value of sales. It does not, on its own, tell you what those sales leave behind. A fuller commercial picture considers direct costs, the mix of products sold and the effort required to serve different customers.
Distinguish revenue, contribution and profit
For a simple contribution analysis, subtract variable costs associated with a sale from its revenue. The remaining contribution supports fixed costs and profit. This differs from net profit, which depends on the wider cost structure and accounting treatment.
Consider the mix
Suppose a business sells two offers with different contribution per sale. Total revenue could rise while the mix shifts towards the lower-contribution offer. The result may look positive at the top line while leaving less capacity to cover the rest of the business.
A useful report shows both the total and its composition: product groups, channels or customer categories that explain the change.
Make service requirements visible
Frequent small deliveries, additional support and custom requirements can affect the economics of a customer relationship. Where reliable costs are unavailable, describe the activities first. A clearly labelled estimate can be useful; false precision is not.
Three questions for a performance review
- Did the realised selling price change?
- Did direct cost or cost to serve change?
- Did the mix of products, customers or channels change?
Connect the explanation to a decision
The next step may involve commercial terms, service design, pricing or the product range. Choose measures that help the person responsible decide what to do.
Explore profitability analysis to see how a focused review can be scoped.