The Association of Food Industries published an article by Food & Beverage Leader Lou Biscotti on how to assess customer and product profitability, for the 2019 U.S. Food Import Industry Annual Report.
The Association of Food Industries
By Louis Biscotti, Food and Beverage Services Leader
Because of the distortion caused by fixed expenses, companies often make poor profitability decisions when relying on a gross profit percentage. Therefore, using contribution margin is the preferable method in analyzing the profitability of a customer, product or distribution channel. Contribution margin is defined as sales less all variable expenses. You won’t see contribution margin in a published financial statement, as gross profit still rules, but it should be a part of every internal financial statement when management has to make financial decisions.