The literature on the subject is very poor. As a result, many companies use inappropriate methods, which are based on fixed cost sharing.
If you want to be specific, i think taking the net contribution of the product will be a good indicator
Dê uma lida nesse artigo: Para uma análise mais detalhada de uma resposta para a sua pergunta, recomendo entrar em contato com um dos autores, Reinaldo Pacheco da Costa, pelo e-mail . Trabalhei com ele e sei que ele pode ajudar você.
METHOD-1:
Under this method, fixed cost is not included in the calculation. It may be simple, but the information is incomplete. Fixed cost is not allocated to the product.
Revenue
Minus Product cost
= Gross margin
Minus sales and administrative costs
= Net profit
METHOD-2:
Fixed is attributed to as a percentage of product cost.
Revenue
Minus sales and administrative costs
= Gross margin-1
Minus customer support cost
Minus marketing costs
= Gross margin-2
Minus product cost
=Gross margin-3
Minus overhead or fixed cost as % of product cost
Minus IT cost as % of product, sales and administrative costs
=Net profit
The attached article talks about profitability index as an alternative mean. Instead of assigning fixed cost sharing per unit as a % of the whole, profitability index looks incremental profit from the product divided by the resource required by the product. In this equation, can fixed cost really be eliminated from the denominator?
Pedro,
You could also look at product profitability from strategy perspective where customers and markets drive everything. As others have said, you could improve product profitability by pricing or margin improvement. By pricing you could include customer insights and needs depending on their willingness to pay for them and for advantaged products this can improve sales to higher levels. By margin improvements you could deliver products at lowest possible price by reducing functional costs and investing the savings into quality and other aspects that create positive image in the minds of customers. It is all about juggling price and product costs.
Best
Friends
The contribution margin per unit (MCU) is the best product profit metric.
MCu = PVu (price per sales unit) - CVu (cost per unit of sale).
where:
CVu = CV(cost of sales) / QV (quantities sold).
CV are the costs that vary directly with the quantities sold (raw material, inputs, sales commissions, etc.).
In the next post I will propose a metric to evaluate the profitability of products.
Products require working capital?
Thank you.
The trick about any model designed to determine a product profitability is the way indirect expenses are distributed. As Pedro has noticed, many companies use a fixed cost sharing method. There are many ways to distribute indirect costs in a more suitable way, but they are all industry specific. There can be no general use best method, as all methods are based on some assumptions that are industry specific.
i believe taking ABS costing system as a starting point will be effective
EBITDA is an acronym in English that means Earnings before Interest, Taxes, Depreciation and Amortisation. This is why it is one of the most used profitability ratios, as it shows the operating profit of the company, revealing its cash flow potential.
Some entrepreneurs may ask themselves: “Why analyse an indicator that excludes so many factors that burden the company? Are these factors not part of the business?”
The negative result of a company can be caused by financial errors, such as contracting a loan, for example. In this case, the entrepreneur who has a positive EBITDA but a negative profit knows that the business itself is on the right track. They should do a financial study or a review of indebtedness, for example.
All financial ratios explained with a simple example.
https://www.sarpublisher.com/types-of-financial-ratios-understand-with-examples/
The contribution margin per unit (MCU) is the best product profit metric.