Homework SourseQ183 SkinTans top five customers generate sales revenue of 9
Q18-3: SkinTan’s top five customers generate sales revenue of £950,000 per annum. Each generates a different gross margin as a consequence of price negotiations that have been carried out over several years. Because of their location, each customer incurs different distribution expenses. Sales commissions are paid at the rate of 6% on all sales. Fixed costs are customer specific, covering salaries of sales and office staff who service each customer. The following table shows the information for each of the top customers for the previous year.
Sales
250,000
250,000
200,000
150,000
100,000
Gross margin %
30%
25%
21%
37%
39%
Distribution expenses
30,000
14,000
25,000
12,000
6,000
Fixed costs
30,000
25,000
16,000
15,000
10,000
Carry out a customer profitability analysis and make recommendations in relation to any future strategies SkinTan should take in relation to its top customers.
| Sales | 250,000 | 250,000 | 200,000 | 150,000 | 100,000 |
| Gross margin % | 30% | 25% | 21% | 37% | 39% |
| Distribution expenses | 30,000 | 14,000 | 25,000 | 12,000 | 6,000 |
| Fixed costs | 30,000 | 25,000 | 16,000 | 15,000 | 10,000 |
Solution
Customer 4 is the most profitable, more sales should be made to him.
Customer 3 is the least profitable or loss making, either price revision should be done or disassociation.
| Particulars | customer 1 | 2 | 3 | 4 | 5 | ||||||
| Margin | 75000 | 62500 | 42000 | 55,500 | 39000 | ||||||
| Distribution expenses | 30,000 | 14,000 | 25,000 | 12,000 | 6,000 | ||||||
| Fixed costs | 30,000 | 25,000 | 16,000 | 15,000 | 10,000 | ||||||
| Profit before commission | 15,000 | 23,500 | 1000 | 28,500 | 23,000 | ||||||
| Sales commission | 15000 | 15000 | 12000 | 9000 | 6000 |
