Customer and product profitability might not seem like the most exciting topic—until you realize how much it affects your bottom line.
Over the years, I’ve seen countless businesses lose money on customer orders without even knowing it, all because they lack proper visibility.
Take a moment to watch the video below and discover how to spot these hidden profit leaks.
One of my favorite topics to discuss is customer and product profitability. Over the years, I’ve seen how poor visibility in this area can lead to massive cost leaks in logistics and supply chain operations. From my 30 years of consulting, I’d estimate that 10–30% of customer orders in most businesses are actually loss-making—and the surprising part is, many businesses don’t even realize it. Their reporting systems just don’t provide the right level of visibility.
This is a huge missed opportunity because addressing these leaks can unlock significant savings and improve overall profitability. But instead of diving into cost analysis today, I want to explore something else: Why don’t businesses address this issue? If I told you that 18% of your customer orders were losing money, wouldn’t you want to do something about it? The reality is, many organizations don’t—and I think the reasons why are worth unpacking.
Why Do Companies Overlook This Issue?
The problem often gets shelved because it feels too difficult to fix. Addressing loss-making products or customers requires cross-functional collaboration, and that’s where things start to fall apart. Solving these issues requires leadership at the very top—typically the CEO or Managing Director—because these problems cut across multiple departments, from procurement to customer service.
Take low-margin products, for example. A conversation about cutting unprofitable items often leads to arguments about maintaining a full range of products. “If we drop this color, will it hurt sales of the others?” The same goes for customer service challenges. Low-margin customers are often tied to frequent, small orders, and tightening policies around this can be tough. Then there’s the impact on inventory, forecasting, and even distribution networks. The siloed nature of many organizations makes it hard to tackle these issues, as no one wants to disrupt their own area of responsibility.
What Does It Take to Fix These Problems?
Some businesses are willing to take the hard road and address these issues head-on. Recently, I’ve worked with clients who are redesigning their distribution networks, adjusting inventory placement, and improving supplier reliability to eliminate the root causes of loss-making orders. These efforts often lead to a 10–15% reduction in logistics costs—proof that the results are worth the effort.
Addressing these challenges requires focus, persistence, and buy-in across the organization, but the payoff is undeniable.
Related articles on this topic have appeared throughout our website, check them out:
- Ten Ideas for Freight Cost Reduction in Your Supply Chain
- How to Improve Warehouse Layout Efficiency and Save Costs
- Cost to Serve – A Smarter Way to Improved Supply Chain Profitability
- Energy and Labour Costs: 2 Top Warehousing Challenges in 2023
- 4 Common Supply Chain Cost Blowouts
