Customer Profitability

Customer Profitability

Louise Fairbern operates Interiors by Louise, an interior design consulting and window treatment fabrication business.

Her business is made up of two different distribution channels: a consulting business in which Louise serves two architecture firms (Adams and Betz), and a commercial window treatment business in which Louise designs and constructs window treatments for three commercial clients (Chatham, Dedham and Elm).

Louise wishes to evaluate the profitability of her two architecture-firm clients and three commercial window treatment clients, as well as evaluate the profitability of each of the two channels and the business as a whole. Information relating to the most recent quarter is:

Adams         Betz          Chatham       Dedham         Elm

Gross Revenue   $234 000     $188 800   $357 380      $147 840      $73 200

Direct Costs        147 000         117 200      218 400        115 720          57 040

The total overhead costs are $340 400. Louise estimates that 25% of her overhead costs relate directly to her architectural business, 40% directly to her window-treatment business, and the remainder are general in nature.

On the revenues above, Louise gave a 10% discount to Adams to lure this customer from a competitor and gave a 5% discount to Elm for advance payment in cash.

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