People need to understand the product wise profitability not only for which product is profitable, but which product as sold to which customer and delivered to which locations for those customers.
Product-wise profitability affects the most out when you decide you are finding the best product out of your other product.
Anyone uses this to determine the profit of that particular product he/she was selling.
What’s in it
What is Product Wise Profitability?
Product profitability helps to determine the profit of the product you sell in the market.
You might be thinking why we should evaluate the profit while we already had our total revenue, right?
Because the revenue we get is pointless if we get no profit on the products that we sell in the market.
Just think for a minute that How do you know which product is profitable or which one isn’t?
You can double down the hustle on that particular product to get the best possible money into your bank account.
So we are going to walk through you to all about determining the product wise profitability.
Before that, consider a few things whenever you are learning the product wise profitability not necessarily for the company, but for each individual.
Now, although the examples that I am going to show you are only for products and you can very easily replace that with service as well, so this could be the leverage you know the product or services.
First off a few things to consider: you are determining the product wise profitability.
Of course, you not only need something that the price and the cost, the unit cost, the number of sales.
But all of this is to determine the characteristics like your revenues, COGS, profit and loss.
You’ll also need to consider other things like marketing cost and sales cost, so are you going to put substantial marketing costs and large sales cost into something you might have a low margin on?
Yes, that would be a nice idea because you make them harmful.
As a result, this allows you to compare all of the sides of your products by side by side!!!.
Take into account marketing, account sales, account your margins, and all of that and again, you could do this with services as well.
Product Profitability Templates
As you have already seen above the graph the cost of good sold in your unit sales
And you’ll see here along each axis of your product names, product one to product 12 in the COGS graph and on the unit sales.
And you can see it correlates with products on the 12th product, but you are not limited to the 12 products or 12 services.
You could come on the next line and add another product in the cogs or the in the sales graph.
There in the data, you could have a number of things like price to unit cost, etc.,
So now you can add up another product. Let’s say we have shoes as product 13, which you can use as an example.
We are selling shoes and the price of those shoes are 50 bucks.
The unit cost let’s say 25 bucks and the numbers that we sell let’s say 500 units.
Here what we are going to do is just put the marketing cost.
If this cost is associated with the promotions of that product, we put it inside of our data.
Let’s assume we have the marketing cost of 4000 bucks.
The additional cost for the employees who push the product to sell into the market or any sales cost.
For sales cost, we take 1000 bucks, and now what you need to make a list with this information.
To understand the above things, we will use another example of product X and Product Z.
So, these are the two goods that you sell each month, but that doesn’t mean that the best selling product is the one which is the most profitable.
Suppose you sell 100 units of product X each month, and this is the best selling product.
But, the cost of the product with shipment is 10 bucks each.
You sell this on the shop for 15 bucks to the customers/
The cost for 100 units * 10 bucks= 1000 bucks (total you pay for the product to the wholesaler)
You sell this product for 15 bucks * 100 units = 1500 bucks
This is the amount you get at the end of the month after selling that product
But the profit on the product should be
1500 bucks – 1000 bucks = 500 bucks of profit on that particular product.
And if you sell 50 units of product Z each month,
The cost of the product with shipment is 10 bucks each.
And you sell this on the shop for 20 bucks to the customers.
The cost for 50 units * 10 bucks = 500 bucks (total you pay for the product to the wholesaler)
And you sell this product for 20 bucks * 50 units = 1000 bucks the amount you get at month-end after selling that product, but the profit on the product should like
1000 bucks – 500 bucks = 500 bucks of profit on that particular product.
So this shows that you are getting the same amount of profit to the product by spending less on the inventory on the product Z, and if you increase to the level at the Product X units in your stock, then the profit will get double.
I am telling you that the best selling product is the product that gives the most profit into your bank account.
And to find the per-unit amount of product X then divide the total number of Units with product profitability you find:
500 bucks of product wise profitability / 100 units = 5 bucks per unit.
And to find the per-unit amount of product Z then divide the total number of Units with product profitability you find:
500 bucks of product wise profitability / 50 units = 10 bucks per unit.
So it’s the unique intersection of a particular product delivered to a specific customer’s location. Try to understand as if like I am having to retail in the Delhi Connaught place.
The personnel, the trucking, the rules on what hours I can get into the Delhi, all of which are quite different then if
I am delivering to the warehouse in Noida or Gurugram, which is the view of profitability that the customers or the user of the product or the service need to understand.
“That’s the level where you need to make a decision of profit or loss by calculating product wise profitability to that product delivered to that location.
Subtract the Product cost from the revenue, for example:
If you sell the 100 units of product X each month and this is the best selling product, the price of the product with shipment is 10 bucks.
You sell this on the shop like for 15 bucks to the customers the cost for 100 units * 10 bucks the costs that you pay to the wholesaler = 1000 bucks.
And you sell this product for 15 bucks * 100 units = 1500 bucks
The amount you get at the end of month after selling that product
But, the profit on the product should like
1500 bucks – 1000 bucks = 500 bucks of profit on that particular product
Gross Profit = Net Sales – Cost of Goods Sold
Operating profit = Gross Profit – (Operating Costs, Including Selling and Administrative Expenses)
Net Profit = (Operating Profit + Any Other Income) – (Additional Expenses) – (Taxes)
The formula for calculating the profit is pretty easy, but it sometimes becomes complex to calculate the profit
Total revenue – Total expenses = profit. Profit is calculated by deducting direct costs, like labour, material, and indirect cost such as (overheads) from the sales.