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Methodology

Customer Profitability Diagnostic methodology

Measure customer profit after delivery, service, acquisition and retention costs.
Duc Nguyen X.By Duc Nguyen X.· Founder, Margin101Last reviewed: View update historyMethodology

Educational only: Business decision support, not accounting, tax or legal advice.

Privacy: Calculations run locally; Margin101 does not receive your commercial inputs.

Update policy: Reviewed when formulas or official dependencies change.

Scope: Market-neutral small-business planning using your own assumptions.

1. Formulas and units

Gross Contribution Ex Tax
grossContributionExTax = customer revenue − product and delivery costs

Where

customerRevenueExTax
Customer revenue (currency units/planning period, ex tax)Source: Business record
productAndDeliveryCostsExTax
Product and delivery costs (currency units/planning period, ex tax)Source: Business record
grossContributionExTax
Gross Contribution Ex Tax (currency units, ex tax)Source: Calculated output
Customer Profit Ex Tax
customerProfitExTax = gross contribution − service cost − acquisition and retention cost

Where

serviceCostExTax
Service cost (currency units/planning period, ex tax)Source: Business record
acquisitionAndRetentionCostExTax
Acquisition and retention cost (currency units/planning period, ex tax)Source: Business record
grossContributionExTax
Gross Contribution Ex Tax (currency units, ex tax)Source: Calculated output
customerProfitExTax
Customer Profit Ex Tax (currency units, ex tax)Source: Calculated output
Service Cost Share
serviceCostShare = service cost / customer revenue

Where

customerRevenueExTax
Customer revenue (currency units/planning period, ex tax)Source: Business record
serviceCostExTax
Service cost (currency units/planning period, ex tax)Source: Business record
serviceCostShare
Service Cost Share (decimal rate)Source: Calculated output
Customer Profit Margin
customerProfitMargin = customer profit / customer revenue

Where

customerRevenueExTax
Customer revenue (currency units/planning period, ex tax)Source: Business record
customerProfitExTax
Customer Profit Ex Tax (currency units, ex tax)Source: Calculated output
customerProfitMargin
Customer Profit Margin (decimal rate)Source: Calculated output

Money inputs and outputs use the currency selected in the scenario without changing the canonical methodology. Rates, margins, utilisation and buffers are entered as percentages and converted to decimal values for calculation.

2. Worked example

Input assumptions

The worked rows below come directly from the registered engine and visible default fixture.

Calculation and outputs

Example

The worked rows below come directly from the registered engine and visible default fixture.

Gross Contribution Ex Tax
50,000 currency units
Customer Profit Ex Tax
30,000 currency units
Service Cost Share
12%
Customer Profit Margin
30%

The exact engine-derived outputs are shown in the labelled rows below.

Interpretation

Customer profit measures the entered customer or cohort after delivery, service, acquisition and retention costs.

3. Validation and boundary checks

  • All inputs must be finite and within the visible boundaries.
  • Costs, revenue and contribution use one consistent ex-tax basis and planning period.
  • Whole-unit thresholds round upward only where the named engine formula requires it.

4. Assumptions and source classification

  • All prices, costs, demand limits and capacity values are user-supplied records or explicit scenarios.
  • Allocated costs remain visible and separate from avoidable costs.
  • The global workflow infers no market benchmark, policy threshold or future demand.

This diagnostic has no current policy-data dependency. Its commercial assumptions are user supplied. Registered family-level regression suites exercise the shared business-logic engine and worked-result reconciliation.

5. Limitations

  • The model does not forecast demand, implementation timing, service quality or strategic fit.
  • It does not replace accounting, tax, legal or financial advice.

This is educational decision support, not tax, accounting, legal or financial advice. Check the treatment of your actual transactions under the rules that apply to your business and seek qualified advice where appropriate.

6. Update and evidence policy

Registered family-level suites test formula invariants and example reconciliation; the release ledger records that coverage without claiming a separate oracle for every line of public copy. There is no official threshold or benchmark to refresh for this diagnostic. Commercial inputs remain user-supplied because they vary by business and contract.

Change history

  1. : Initial public release of the Customer Profitability Diagnostic planner and methodology.

Related reading

Guides to interpret the decision and its assumptions.

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