CUSTOMER PROFITABILITY DOCUMENTATION UPDATES

Transcription

1 DOCUMENTATION UPDATES Date Description Where Changed 3/5/08 You can create an expense class basis for sales, direct ship lines of billing, and warehouse lines of billing to better define expense reporting for each of your customers. Enter one of the new values of SALES, DLOB, or WLOB in the Basis field of the Expense Class record. This is in effect as of Acclaim and higher. You can see these new values displayed on the Customer P&L Report. The Customer P&L View screen now displays information for warehouse lines of billing, which is calculated as the total lines of billing minus the direct ship lines of billing. 7/11/07 For the Fixed field in Expense Class Maintenance, the statement The Fixed field can only be set to Yes for basis LOB, ORD, or DAYS has been changed to The Fixed field can only be set to Yes for basis DAYS, RTRN, or RLOB. 7/11/07 Better definitions on assembly components have been provided for the Include Components in LOB parameter of the Customer P&L Report. 7/11/07 The Customer P&L View screen has its own menu option on the Customer Credit main menu. New fields and columns have been added to the screen, such as Gross Profit %, Net Profit %, Variance and Variance %. 7/11/07 Two new options, Build and Delete, have been added to the Expense Class Options menu. You now have the ability to create, edit and delete ranges of customer expense class records. Defining Expenses chapter, in the Auxiliary Tables main section, in the Expense Classes section. The Basis field displays the new values (page 7). Sales History chapter, in the Customer P&L Report section (page 26). Customer Credit chapter, in the Customer P&L Information section (page 33). Defining Expenses chapter, in the Auxiliary Tables main section, in the Expense Classes section, in the Maintenance sub-section, see the Yes definition for Fixed field (page 8). Sales History chapter, in the Customer P&L Report section, in the Include Components in LOB parameter (page 27). Customer Credit chapter, in the Customer P&L Information section (page 32). Customer chapter, in the Expense Classes section. The Build subsection starts on page 21 and the Delete subsection starts on page 23.

2 CUSTOMER PROFITABILITY Based on Gross Profit Dollars and Activity-Based Costs

3 This manual contains reference information about software products from Activant Solutions Inc. The software described in this manual and the manual itself are furnished under the terms and conditions of a license agreement. The software consists of software options that are separately licensed. It is against the law to copy the software on any medium, or to enable any software options, except as specifically permitted under the license agreement. In addition, no part of this manual may be copied or transmitted in any form or by any means without the prior written permission of Activant Solutions Inc. From time to time, Activant makes changes to its software products. Therefore, information in this manual is subject to change, and the illustrations and screens that appear in the manual may differ somewhat from the version of the software provided to you. Created by: Yardley Technical Communication 2008, Activant Solutions Inc. All rights reserved. Activant and the Activant logo are registered trademarks and Activant Prophet 21 is a trademark of Activant Solutions Inc. All other company or product names are the trademarks or registered trademarks of their respective companies. Activant Solutions Inc Southfront Road Livermore, CA Acclaim Version 17.0 Publication Date: DOCUMENTATION CONVENTIONS The eyeglass symbol () indicates a field on which you can browse. The star () indicates the system default for a field. To allow for the widest possible parameters when printing a report or performing a function, accept the defaults for all of the parameter fields. To accept the defaults, either escape through all the fields, or press [Enter] without specifying any values. Generally, samples in the documentation are shown using the default values. Start and End parameters define the limits to a range of information you will print on a report. If information does not appear on a report, it may be because the information was excluded from the Start, End range. For a detailed explanation on how maintenance screens function, refer to the Tour Guide manual. Use the search tool in Adobe Acrobat Reader 7.0 or higher to find which manual describes a specific module, job, or function. ii

4 Table of Contents 1 INTRODUCTION 4 Overview 4 LIB-UPDATE 5 2 DEFINING EXPENSES 6 Auxiliary Tables 6 Expense Classes 6 3 CUSTOMER RANK CLASSES 9 Overview 9 Setting Up Customer Rank Classes 10 How to Define Rank Classes 11 4 LEDGER 13 5 CUSTOMER 15 Expense Classes 15 Overview 15 Setting Up and Reporting Customer Expense Classes 16 Customer Maintenance 24 6 SALES HISTORY 26 Customer P&L Report 26 Sample Calculations 30 7 CUSTOMER CREDIT 32 Customer P&L Information 32 iii

5 1 INTRODUCTION You can now calculate your customers profitability based on gross profit dollars and activity-based costs. A new Expense Class field has been added to the Auxiliary Tables, Customer, and Ledger modules. A new Rank Class field is located in the Auxiliary Table and Customer modules, and a new Customer Profit and Loss Report is now found in Sales History. OVERVIEW This feature provides the ability to measure true profitability of customers based on gross profit dollars and activity-based costs. Customer gross profit dollars are calculated from sales history information for a specified period. You define expenses into expense classes and these expense classes are assigned to customers. Each customer may incur different expenses and will be defined differently. A percentage of transactions that fall under these expense classes can also be specified for each expense class within a customer. Some examples of expense classes are as follows: Sales Activity sales payroll and commissions Sales Support inside sales payroll, purchasing payroll, marketing payroll Office Activity IT payroll, clerical payroll, office equipment and supplies Storage Activity warehouse expenses (rent, taxes, etc) Handling Activity shipping and receiving expenses, warehouse personnel payroll Delivery Activity common carrier delivery expenses, truck upkeep and expenses, driver payroll General Ledger expense accounts are assigned a specific expense class. More than one ledger account can be assigned to the same expense class. The actual dollar amounts will be pulled from ledger postings for these expense accounts and will be prorated down to the customer level based on customer sales activity and expense classes defined. A net profitability is then calculated for each customer based on profit minus expenses. 4

6 1 INTRODUCTION LIB-UPDATE The job LIB-UPDATE will initialize the new rank_class field on the Customer record when Acclaim 17 is installed. For more information on the Lib-Update job, refer to the System Administration manual. 5

7 2 DEFINING EXPENSES You define your expense information into classes and these expense classes are then assigned to customers, helping to determine their net profitability. As shown in the prior chapter, some examples of expense classes are Sales Activity, Handling Activity, and Delivery Activity. AUXILIARY TABLES EXPENSE CLASSES You now view a new Expense Classes option under Auxiliary Tables for customer profit and loss calculations. 6

8 2 DEFINING EXPENSES When you choose the Maintenance option, a screen similar to the following appears after you enter a class: Class Description... user-defined numeric value assigned to the expense class.... defines the expense class assigned this class number. Refer to the example expense classes described in the Overview section on page 4. Basis... indicates how the expense amount from the corresponding ledger accounts is prorated for each customer. GP Gross profit dollars. This is the default value. COGS Cost of goods sold. LOB Lines of billing. ORD Number of orders. DAYS Average days late (only used when the Fixed field = Yes). RTRN Number of customer returns (only used when the Fixed field = Yes). RLOB Lines of billing for customer returns (only used when the Fixed field = Yes). SALES Sales value. DLOB Direct ship lines of billing (only used when the Fixed field = Yes). WLOB Warehouse lines of billing (the total lines of billing minus the direct ship lines of building. Note: The SALES, DLOB, and WLOB values are provided with Acclaim and higher. 7

9 2 DEFINING EXPENSES Fixed... indicates whether the amount to be charged is a fixed amount or not. No These expense classes are assigned to ledger accounts, and the posted amounts in these accounts are used to calculate the expense for the customer based on the specified basis. An expense class can be assigned to multiple ledger accounts with the total from all ledger accounts with the same expense class being used in calculations. You may want your delivery activity expense to be dispersed across your customers based on lines of billing [customer expense = (LOB for customer) / (total LOB) * (total delivery expense) * (customer expense percent)] but you want your sales activity expense to be dispersed across your customers based on gross profit [customer expense = (GP for customer) / (total GP) * (total sales activity expense) * (customer expense percent)]. No is the default value. Yes The program will not look to the ledger accounts but instead will charge the specified fixed amount based on the basis field and the percentage of the customer expense class. The Fixed field can only be set to Yes for basis DAYS, RTRN, or RLOB. 8

10 3 CUSTOMER RANK CLASSES OVERVIEW When you begin to set up your customer ranking classes, you need to first consider how often you will want to update the ranking (monthly, quarterly, yearly, etc.) and ensure that the report period is run in sync with the time period you select. For example, you set up Class 1 to be customers who generate profit of $50,000 or higher over a 12-month period. However, you then run the Customer P&L Report for a single month and update the rank class and find that you may not have any customers who show that kind of profit in a given month, although you may have several customers who may show that profit over one year. To avoid this situation, set up your classes and run the Customer P&L Report to update the customer rank class in the following ways: If the rank class represents yearly profit, then the customers rank class should only be updated when you run the Customer P&L Report for a period of 12 months. If the rank class represents quarterly profit, then the customers rank class should only be updated when you run the Customer P&L Report for a period of three months. If the rank class represents monthly profit, then the customers rank class should only be updated when you run the Customer P&L Report for a period of 1 month. For more information on the Customer P&L Report in Sales History, refer to the Sales History chapter on page 26. 9

11 3 CUSTOMER RANK CLASSES SETTING UP CUSTOMER RANK CLASSES The Customer Rank Classes section of the system will be used to hold the customer s net profitability rank. To access this area of the system, choose Customer from the Auxiliary Tables menu, then Rank Classes from the Customer menu, and then Maintenance from the Rank Classes menu: A maintenance screen similar to the following appears. This sample screen is displaying information you would enter. Class Desc... user-defined numeric value for this net profitability ranking range.... description of this profitability range. 10

12 3 CUSTOMER RANK CLASSES Min Net Profitability... lowest value for the range of this profitability ranking range. Max Net Profitability Note:... highest value for the range of this profitability range. The Profitability ranges are based on the period for which you run the Profit and Loss Report. For more information on the P&L Report, refer to the Sales History chapter on page 26. HOW TO DEFINE RANK CLASSES On this screen, set up rank classes to rank each customer by their profitability. You decide on how many classes and how many profit ranges would be appropriate for your customers. The profitability ranges would be set appropriately for a standard period for which you would run the Customer P&L Report in Sales History. For an example, we can define our customers into three classes: Class Minimum Net Profitability Maximum Net Profitability , If the customer has a net profitability between $0.00 and $100.00, they would rank as Class 1. If the customer has a net profitability between $ and $500.00, they would rank as Class 2. If the customer has a net profitability between $ and $ , they would rank as Class 3. This is a user-defined way to group customers together based on how profitable they are to your business. Net Profitability and the Rank Classes When you run the Customer Profit &Loss Report for a specific period, you have the option to update the rank class. Therefore, for that period (for which you are running the report), the system looks at the net profit for each customer and assigns the correct rank class for where the customer falls between the minimum and maximum profitability. The profitability reflects the profit your company makes when dealing with each customer. When the customer s profitability is negative or low, it is costing you money to sell to this customer (maybe they have a lot of returns, or do not pay on time, or need a dedicated sales person, etc). When the customer s profitability is higher, you make more money when dealing with this customer. Once you know which customers with whom you make more money, you would try to increase your sales with them. You could also either decrease your business with those low-profit customers, or at least try to change them to become a more profitable customer to you. 11

13 3 CUSTOMER RANK CLASSES For an example, you have Customer ABC who buys Item 123 (price $100, cost $25). You also have Customer XYZ who buys Item 987 (price $50, cost $40). As a result, you would want to sell more 123s to ABC and sell fewer 987s to XYZ (or get them to buy 123s), because you don t make as much profit when dealing with XYZ and 987s. 12

14 4 LEDGER A new Expense Class field has been added to the Ledger Account screen to link an expense class to a ledger account. To view the new field, select Account Maintenance from the Ledger main menu, and then choose Edit Account Information from the Account Maintenance menu: 13

15 4 LEDGER An Account screen, similar to the following, displays after you choose an expense account: An Expense Class field now appears. Expense Class... used as a classification to combine other like expense accounts for a total expense amount. When accumulating expenses for a specific expense class, each ledger account assigned to that specific expense class is added together for a total expense amount. Note: The Expense Class field can only be used for accounts where the Account Type field is set to Expense. This field is available on all entry, edit, and view screens, in Fast Edit screens, and on Account Registers. For more information on the fields of the Account screen, refer to the Ledger manual. 14

16 5 CUSTOMER EXPENSE CLASSES OVERVIEW The expense classes are then assigned to customers. In general, a customer would be set up with expense classes all set to 100%. This means that if the customer incurs a certain expense, then they incur this 100% of the time. As an example, a returned LOB expense would apply 100% of the time for returned lines of billing. But in one situation, a company has an insides sales personnel expense and has a customer who calls in their orders to Inside Sales 25% of the time, but uses the web to enter their orders 75% of the time. The company would set the Sales Support Expense Class Percentage to 25% for this particular customer. Using another example, if you deliver 75% of the time to your customer, but 25% of the time they pick up their orders, then you would set your Delivery expense class to 75% for that customer. 15

17 5 CUSTOMER SETTING UP AND REPORTING CUSTOMER EXPENSE CLASSES You can specify which expenses a particular customer incurs. To start this process, choose Expense Class Options from the Customer menu: The Expense Class Options submenu appears: Maintenance... where you assign expense classes to customers. For more information on adding, editing, and deleting expense classes to/from customers, refer to the next section. Report... reports the expense class and the expense class percentage for each customer. For more information on printing this report, refer to page 19. Build... creates new customer/expense class matrix records, or edits a range of existing ones. More information on the Build option is found on page 21. Delete... purges selected customer expense class records. For more information on deleting records, refer to page 23 16

18 5 CUSTOMER MAINTENANCE When the Maintenance option is selected, a browse by customer or expense class appears (depending on the information within your system), similar to the following: Note: You can press [Tab] on this screen to select another browse. You can select either a customer or a customer/class from the browse. To add a new expense class to a customer, select that customer in the browse and press [Enter]. If the Expense Class Browse screen is empty, press [Insert] to add a record. 17

19 5 CUSTOMER The following sample screen displays all the classes assigned to a customer. (You can access this screen by selecting a customer from the Browse by Customer screen.) Note that the Expense Class Browse frame will not display classes until they are assigned to the customer. Note: If you add a wrong expense class, highlight the class code and name on this screen and press [Ctrl][D] to remove it. 18

20 5 CUSTOMER Once a customer or customer or customer/class record is selected, the Customer Expense Class Maintenance screen appears. You specify which expenses a particular customer incurs on the maintenance screen. Customer Code... customer to whom you are assigning the expense class. Class... expense class to be assigned to this customer. These are the classes you added Auxiliary Tables > Expense Classes. Percent... indicates the percentage that this expense applies to the customer. The maintenance screen shows only one expense at a time, which is the one selected. The browse displays all expense classes assigned to a customer. REPORT You can print a report on your customers and the expense classes assigned to them. To do this, choose the Report option from the Expense Class Options menu: 19

21 5 CUSTOMER The following parameter screen appears: Report Sequence... determines the sort order of the report. Customer The report is sorted by customer code. This is the default setting. Expense Class Information is displayed in order of expense class code. Customer Start/End Expense Class Start/End... indicates which customers are to be displayed on the report. You can browse on customer codes on both the Start and End fields.... selects which expense classes are to be shown. You can browse on expense classes on the Start and End fields. 20

22 5 CUSTOMER After you set the parameters, pressing [F2] generates a report similar to the following: BUILD The Build option creates new customer/expense class matrix records, or edits a range of existing records. When you choose Build, a screen similar to the following is shown: Customer Start/End Sales Rep Start/End... range of customer codes on which to base the build or edit.... range of sales reps. 21

23 5 CUSTOMER Customer Class Start/End Expense Class Start/End Expense Class %... range of customer classes.... range of expense classes.... indicates the percentage that this expense applies to the customer. For more information on customer expense class percentages, refer to the Expense Classes Overview section in the Customer chapter on page 15. Create Records?... determines whether a new record is created for the customer/expense matrix if it does not exist. Yes The system creates new customer expense class records for all customers and expense classes in the range that do not already exist. No Records are not built for the customers and expense classes. Edit Records?... indicates whether existing customer/expense records are edited. Yes The system changes the expense class percentage for all existing customer expense class records in the range. No Editing is not permitted. Note: You can set both the Create Records and Edit Records to Yes simultaneously. Once the parameters are completed, press [F2] to generate the build. Acclaim displays how many records were created and/or edited: 22

24 5 CUSTOMER DELETE The Delete function purges customer expense class records that fall within the parameter ranges. When you select the Delete option on the Expense Class Options menu, the Customer Expense Class Deletion parameter screen appears: Customer Start/End Sales Rep Start/End Customer Class Start/End Expense Class Start/End... range of customer codes on which to base the deletion process.... range of sales reps of customer expense class records to be deleted.... range of customer classes.... range of expense classes. Once the parameters are completed, press [F2] to begin the deletion process. You will receive a warning message to confirm that you wish to delete the records within the range of parameters: 23

25 5 CUSTOMER Answer Yes to continue with the deletion; answer No to return to the Expense Class Options menu. If you answered Yes, Acclaim displays the number of customer expense class records that were purged: For more information on these customer expense classes, refer to the Customer Information manual. Information on Auxiliary Tables, where you first set up expense classes, is found in the System Administration manual. CUSTOMER MAINTENANCE A new Rank Class field has been added to the Customer record. To view this new field, select Customer Maintenance from the Customer main menu and choose a customer to view their record. A screen similar to the following appears: Rank Class... the rank class indicates how profitable this customer is to your company. This Rank Class field is updated in one of two ways: 1. You manually update it by editing the field. 2. The running of the Customer P&L Report in Sales History updates this field of the Customer record when you answer Yes to the Update Rank Class field found on the report s parameter screen. 24

26 5 CUSTOMER For more information on Sales History s Customer P&L Report, refer to the next chapter. 25

27 6 SALES HISTORY CUSTOMER P&L REPORT You can access the new Customer P&L Report in the Sales History module. This report displays the customer s profitability with expenses included in the net profitability calculation. To access the report, choose Reporting on the Sales History menu and then Customer P&L on the Reports menu: 26

28 6 SALES HISTORY The following parameter screen appears: Report Sequence... determines the sort order of the report. Customer The P&L Report is sorted by customer code sequence. Sales Rep The report is sequenced by sales rep number. Rank The system ranks the customers based on net profitability and displays them by highest to lowest. Customer Start/End... range of customer codes on which to run the report. Only customers in the range values entered are displayed. Sales Rep Start/End Invoice Date Start/End Rank Class Start/End Include Components in LOB... range of sales reps that is searched for information.... invoice date range on which to generate the report.... range of rank classes that are searched.... determines if assembly components are displayed in the lines of billing. Yes Assembly components are included. No Assembly components are not included in the lines of billing. Only the assembly descriptive item is included. Display Expense... specifies if expense classes are shown. 27

29 6 SALES HISTORY Classes Yes Expense classes are shown on the report. No Expense classes are not displayed. Update Rank Class... updates the Rank Class field on the Customer record based on the values defined in Customer Rank Class Maintenance. For more information on the Customer Rank Class Maintenance found under Auxiliary Tables, refer to Setting Up Customer Rank Classes on page 10. Important: This field can only be accessed when Q-Mode is enabled. Update PTD... determines whether period-to-date customer P&L information is updated. Yes The system moves the values from the Customer P&L Report to the PTD column of the Customer P&L View screen in the Customer Credit module. This is a new screen in the Customer Credit module. No Profit and loss information is not moved to Customer Credit. The PTD time period is dependent on the invoice date parameters. The Start/End Invoice Date range entered on the Customer P&L Report is considered the current period-to-date. Important: Q-Mode must be enabled for you to access this field. For more information on the Customer P&L screen in Customer Credit, refer to the following Customer Credit chapter on page 32. Update LPTD... decides whether last period-to-date customer P&L data is updated. Yes The system moves the values from the Customer P&L Report to the LPTD column of the Customer P&L View screen in the Customer Credit module. This is a new screen in the Customer Credit module. No Profit and loss information is not placed in Customer Credit. The LPTD time period is dependent on the invoice date parameters. The Start/End Invoice Date range entered on the Customer P&L Report is used to specify a date range. LPTD is calculated based on this range but in the previous year. Important: Q-Mode must be enabled for you to access this field. Refer to the following Customer Credit section on page 32 for more information on the Customer P&L screen in Customer Credit. When you complete the parameters, a report similar to the following appears for a report run in customer code sequence: 28

30 6 SALES HISTORY If you set the Display Expense Classes field to Yes, the expense classes and individual expense amount for each customer displays under the customer s name: The sales, cost, profit, and lines of billing columns are all taken from the sales history data for the specified period. Calculations are determined as follows: The total lines of billing, gross profit, etc (based on the expense class basis) are calculated for all customers in the invoice date range. The total expense for each expense class is calculated by accumulating the debits and credits for each expense ledger account within the date range that is assigned the particular expense class. For each customer, the expense is then calculated by dividing the number of lines of billing, gross profit, etc. for the customer by the company-wide number of lines of billing, gross profit, etc. This provides the customer s percentage of that expense. That value is then multiplied by the total expense for that class, which in turn is multiplied by the percentage that class applies to the customer (from the Customer Expense Class settings). For example, you may want your delivery activity expense to be dispersed across your customers based on lines of billing: Customer Expense = (LOB for customer) / (total LOB) * (total delivery expense (class 15)) * (customer expense percent) You may want your sales activity expense to be dispersed across your customers based on gross profit: Customer Expense = (GP for customer) / (total GP) * (total sales activity expense) * (customer expense percent) If the expense is fixed, the expense can be assigned a dollar amount per basis. That basis can be multiplied by the specified dollar amount and the customer expense percent and added to the expense value. For example, customer returns can be assigned a dollar amount per returned line of billing or order. Customer expense = (Returns for customer) * (fixed amount for return ($10)) * (customer expense percent) Late payers can be assigned an expense as well by specifying a dollar amount per day late based on the average days late for the customer. This is also accomplished by creating a Fixed Expense class in the auxiliary table. The Net Profitability column is then calculated by subtracting the expense amount from the profit amount. 29

31 6 SALES HISTORY SAMPLE CALCULATIONS Gross Profit for August = 500,000 Lines of Billing for August = 20,000 Sales Support Expense for August = 50,000 Delivery Expense for August = 10,000 Returned LOB expense = 40 per line Average Days late expense = 10 per day Customer ABC is set for Sales Support Expense (100%), Delivery Expense (50%,) Customer Returns Expense (100%), and Average Days Late Expense (100%) Customer XYZ is set for Sales Support Expense (75%), Customer Returns Expense (100%), and Average Days Late Expense (100%) No other customers are tracked Sales Support Expense is based on GP$ Delivery Expense is based on LOB Customer Returns Expense is set as Fixed Average Days Late expense is set as Fixed Customer ABC Gross Profit = 150,000 Lines of Billing = 5,000 Returned LOB = 100 Average Days Late = 0 Sales Support Expense = (150,000 / 500,000) * 50,000 * 100% = 15,000 Delivery Expense = (5,000 / 20,000) * 10,000 * 50% = 1,250 Returned Expense = 4,000 Late Pay Expense = 0 Net Profit = 150,000 15,000 1,250 4,000 = 129,750 Customer XYZ Gross Profit = 50,000 Lines of Billing = 2,000 30

32 6 SALES HISTORY Returned LOB = 500 Average Days Late = 100 Sales Support Expense = (50,000 / 500,000) * 50,000 * 75% = 3,750 Delivery Expense = 0 Returned Expense = 20,000 Late Pay Expense = 1,000 Net Profit = 50,000 3,750 20,000 1,000 = 25,250 31

33 7 CUSTOMER CREDIT CUSTOMER P&L INFORMATION A Customer P&L View screen has been added to the Customer Credit module to display P&L information for each customer. To view this, choose Customer P&L View from the main menu of Customer Credit (CUST- CREDIT): 32

34 7 CUSTOMER CREDIT After a customer code is entered in the Customer field, a screen similar to the following appears, showing PTD (current period-to-date) and LPTD (period-to-date but for this period, last year). The following new fields and columns have been added to this screen: Gross Profit % (row)... ratio displaying the resulting profit from operations after all variable costs have been subtracted from revenue. Acclaim uses the following formula for calculating the Gross Profit Percentage: Sales Cost Sales X 100 % Net Profit % (row)... ratio displaying the net profit after costs and expenses are subtracted from revenue. The system calculates the Net Profit % by this formula: Sales Cost Expenses Sales X 100 % Warehouse LOB (row) Variance (column)... warehouse lines of billing. This value is calculated as the total lines of billing minus the direct ship lines of billing.... shows the difference between current period information and the last period information. PTD (in dollars) - LPTD (in dollars) = Variance (in dollars) 33

35 7 CUSTOMER CREDIT Variance % (column)... displays the percentage difference between current and last period. PTD LPTD X 100 % PTD For more information on the Customer Credit module, refer to the Receivables manual. 34