Customer Profitability Analysis: Boston Depot Sells Office Supplies to Area

Essay

Customer Profitability Analysis: Boston Depot sells office supplies to area corporations and organizations.Tom Delayne,founder and CEO,has been disappointed with the operating results and the profit margin for the last two years.Business forms are mostly a "commodity" business with low profit margins.To increase profit margins and gain competitive advantages,Delayne introduced "Desk-Top Delivery" service.The business seems to be as busy as ever.Yet,the operating income has been declining.To help identify the root cause of declining profits,he decided to analyze the profitability of two of the firm's major customers: Omega International (OI)and City of Albion (CA).
According to the customer profitability analysis that Boston Depot conducts regularly,Boston Depot has the same amount of total sales with both OI and CA.However,the firm earns a higher gross margin and gross margin ratio from CA than those from the sales to OI,as demonstrated here: