BUS 322 Lecture Notes - Lecture 10: Contribution Margin, Earnings Before Interest And Taxes, Herbalism

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 322
• Professor: Mahmoudian Fereshteh

Document Summary

Studies ha(cid:448)e sho(cid:449)(cid:374) that o(cid:374)ly 20% of a (cid:272)o(cid:373)pa(cid:374)y"s (cid:272)usto(cid:373)ers (cid:272)o(cid:374)tri(cid:271)ute to profits, a(cid:374)d. Possible qualitative reasons to retain unprofitable customers. Nonmonetary benefits, such as knowledge or expertise. A bar graph is a common analytical tool to reveal which customers are profitable or not. Comparing the customer-related costs for each customer can reveal helpful insights. Order processing costs, engineering and design changes, and special handling costs for customer 102 (on example) are above normal. Special packaging costs for customer 114 (on example) are 4 times the norm, and the special handling costs are 6 times the norm. Once we know why the customers are unprofitable, we can modify customer relationships to improve profitability by studying closely all the customer-related activities that drive costs. Healthwave, inc. sells non-prescription pharmaceuticals, supplements, and herbal remedies to three major customer types, pharmacy, grocery, and herbal therapist.