I didn't realize product mix, delivery costs, and variable rebates would affect our profitability so much

We have over 100 customers and sell the same set of products to each of them, yet some are profitable and others aren’t. I really don’t understand. They all get the same products for the same price. We have volume discounts and rebates but we show them a separate line item and can track them.

My husband’s friend works for an analytics company and took a look at our sales figures and accounts. The first thing he saw was there were significant differences in the mix of sizes between sales outlets. As the smaller sizes have higher margins it is the mix of sizes and not just the volume that affects profitability. The next thing he found was that different outlets had different thresholds where the rebates kick in. On some accounts the threshold was $45K in revenue, on others it was $65K, and one had $80K. So while we can track the total rebate we pay, we start paying earlier and this affects profitability. Finally, he said that delivery costs were assumed to standard costs, but the distance from the warehouse to the outlet varied from 1 to 150 miles. Moreover, we collected returns from some but not all outlets.

This made me realize that all revenue is not the same. I was shocked that our profitability was so affected by product/size mix, how we set rebate thresholds, and by underpricing delivery.

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