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Redefining the Profitability Recipe For Food And Beverage Companies

Many food and beverage companies focus on customer relationships because they generate more sales, but they don’t take the next step of looking at what profits are generated by that customer. These companies often focus on gross profit, but the problem with gross profit is that cost of goods sold often includes fixed expenses -which don’t change incrementally with sales. Because of the distortion caused by fixed expenses, companies often make poor profitability decisions using a gross profit percentage. Therefore, utilizing contribution margin is the preferable method in analyzing profitability of a customer, product or distribution channel. Analyzing the contribution margin of each customer or product is essential to overall profitability.

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