Bill Canady argues that profit lives in material margin, not revenue. He shows how a billion-dollar company's 20 customers generated 65% of revenue, while traditional P&L statements hide where money actually comes from. Rank every customer and SKU by material margin to find the profit you're missing.
Before you grow, earn the right to. One ratio, material margin over total employee cost. What you make on what you sell divided by what it costs to have the people who sell it, make it, and ship it. That's the real work. Rank every customer, every SKU by material margin, not revenue margin. Your P&L will never show you this. A P&L reports averages and profit does not live in averages. It lives at the intersection of a specific customer buying a specific product. I'll tell you what we found when we did this at a billion-dollar company. We had 16,000 suppliers, 12,000 customers, and when we peeled it back, 200 customers were over 90% of our sales, and 20 of them were 65% of the revenue of the entire company.
