KitsWest Capital recommends comparing revenue and gross-profit concentration, without a universal safe cutoff. It cautions against diluting percentages with unprofitable revenue.
Test the percentage
Fictional figures in C$ thousands; same period and gross-profit basis. Add revenue of 500 with assumed zero gross profit; hold existing business unchanged.
Before → After
Total revenue: 1,000 → 1,500
Tracked customer’s revenue: 300 → 300
Total gross profit: 300 → 300
Tracked customer’s gross profit: 90 → 90
Customer’s revenue share: 30% → 20%
Customer’s gross-profit share: 30% → 30%
Only revenue share falls. Operating costs, capacity, customer-loss earnings and business value are not modelled. The comparison does not establish overall resilience.
Examine the cost to serve
BDC’s customer-profitability method starts with invoice price after discounts, then subtracts the cost to serve, including extra services and the stated fixed serving costs. Keep this cost-to-serve calculation separate from accounting gross profit. Ask which discounts and extra services are included in your account analysis.
Check how costs were assigned
BDC’s costing guide distinguishes costs that can be traced economically to the chosen product, service or customer from costs that need allocation. It says allocations should follow resource use; a poor allocation can distort conclusions. Allocating a cost to a customer does not establish that it disappears if the account ends.
BDC also recommends concentrating effort on important, identifiable costs and involving accounting and operations in the data. The useful follow-up is specific: which costs were traced, which were allocated, and what data support the allocation?