Q18-3: SkinTan’s top five customers generate sales revenue of £950,000 per annum. Each generates a different gross margin as a consequence of price negotiations that have been carried out over several years. Because of their location, each customer incurs different distribution expenses. Sales commissions are paid at the rate of 6% on all sales. Fixed costs are customer specific, covering salaries of sales and office staff who service each customer. The following table shows the information for each of the top customers for the previous year.
Sales 250,000 250,000 200,000 150,000 100,000
Gross margin % 30% 25% 21% 37% 39%
Distribution expenses 30,000 14,000 25,000 12,000 6,000
Fixed costs 30,000 25,000 16,000 15,000 10,000
Carry out a customer profitability analysis and make recommendations in relation to any future strategies SkinTan should take in relation to its top customers.