Customer Income Statements

There are some key characteristics of a typical manufacturing supplier’s P&L (or income statement) when compared to a customer’s P&L, demonstrated in this example:




Revenue 100 Revenue 100
Cost of Sales 68 Cost of Goods 81
Gross Profit 32 Gross Profit 19
Selling & Distribution 11 Supplier Income 7
Contribution Profit 21 Adj. Gross Profit 26
Admin Expenses 9 Store & Other Overheads 23
Operating Profit 12 Operating Profit 3
Other 0 Other 0
Net Profit before Tax 12 Net Profit before Tax 3

This brings to life the principle we have just looked at – that different businesses create value in different ways:

  • A manufacturer will tend to have higher margins and lower asset turns. Note that a typical manufacturer enjoys higher margins when compared to a customer
  • A customer will tend to have lower margins and higher asset turns. Most of our customer’s assets are held in inventory/stock “Cost of Goods” – here stock accounts for 81% of all our customer’s assets. You can see how stock turn becomes so critically important to our customer.

This is at the heart of how we approach all financial discussions with our customer:

At lower margins, our customer must efficiently turn over his assets as much as possible, in order to make a profitable return.