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Maximizing Success: Why use Product Profitability Reports

Maximizing Success: Why use Product Profitability Reports

August 28, 2023

In any manufacturing or trading setup it is important for the owners, managers and CxOs to understand the profit distribution of the business. The profit distribution can be viewed through different dimensions such as geography, sales team, customer segmentation and product segmentation. One of the key reports to view profitability distribution is the product profitability report.

Understanding Product Profitability Reports

A product profitability report is a comprehensive analysis of the financial performance of individual products or product lines within a company’s portfolio. It provides a breakdown of revenue, costs, and ultimately, the profitability of each product. Using the product profitability report one can understand the contribution of product and product groups to the organization’s total profit. Some companies also look the product profitability in tandem with other dimensions such as customer, customer segment, geography to further understand under and over-performance.

How to generate Product Profitability Report

You may follow the steps below to generate the product profitability report in Tally. These steps are same for both Tally.ERP9 and Tally Prime:

  1. Go to the Stock Summary Report
  2. Click on F12 -> Configure and select “Yes” for Show Opening Balance, Show Goods Inwards, Show Goods Outwards
  3. Select “Yes” for Show Consumption and Gross Profits and proceed to accept all changes or press Ctrl + A
  4. Now you will see the gross profit in value and percentage terms
  5. You drill down upto the item level if you so need

You can also use the Product Profitability Report in EasyReports for Tally. The report is available under the Sales Report group under the name “Sales Margin – Avg Cost”.

  1. Click on the report layout which you want to use
  2. Enter the parameters for the report. You can select multiple companies and select the date range for which you want the report
  3. The report is shown in the classical Pivot format which allows you to drag and drop different dimensions including dimensions for customer segmentation and geography

Using the Stock Summary Report in Tally you can drill down to the transaction level while the EasyReports’ report shows you the data in various formats can be used to go up to the transaction level in the main report. Further you can also use other dimensions to see profitability according to combinations, e.g. state wise product wise, customer wise product wise, etc.

The Significance of Product Profitability Reports

Informed Decision-Making: Business decisions are only as good as the data they’re based on. A product profitability report offers a clear picture of which products are contributing significantly to the company’s profits and which ones might be dragging it down. Armed with this knowledge, decision-makers can allocate resources wisely, focus on the most profitable products, and possibly phase out or revamp underperforming ones.

Resource Allocation: Resources, both financial and human, are limited. By analyzing the profitability report, a company can optimize its resource allocation. This might mean investing more in products with high profit margins or redirecting marketing efforts towards products that have the potential to yield better returns.

Pricing Strategies: A deep understanding of product profitability allows for effective pricing strategies. Setting prices too low might attract customers but erode profits, while setting them too high could discourage sales. The report provides insights into the actual costs associated with production, helping businesses strike the right balance between attracting customers and maintaining profitability.

Identifying Trends: Product profitability reports are not one-time documents; they are snapshots of ongoing performance. By tracking these reports over time, businesses can identify trends in product performance, allowing them to adapt and pivot as needed. This flexibility is crucial in a rapidly changing market landscape.

Product Portfolio Management: Companies often offer a range of products to cater to different customer segments. The profitability report aids in assessing which products are aligned with the company’s goals and which might need adjustments or even elimination from the portfolio.

Cost Control and Efficiency: The report delves into the various costs associated with production, distribution, and marketing. This level of visibility enables companies to identify areas where costs can be reduced or efficiency can be improved, directly contributing to higher profitability.

Investment and Innovation: When considering new products or innovations, understanding the profitability of existing products provides a benchmark. It helps in evaluating whether new ventures will contribute positively to the company’s financial health.

Challenges and Considerations

While product profitability reports are incredibly valuable, they do come with challenges. Accurate data collection and allocation of costs can be complex, and overlooking certain costs might lead to skewed insights. Additionally, external factors like market dynamics and changing customer preferences might not always be fully captured within the report.


In the competitive landscape of business, companies cannot afford to operate blindly. The product profitability report serves as a compass, guiding decision-makers towards strategies that enhance financial health and sustainable growth. By delving into the nuances of each product’s contribution to the bottom line, businesses can ensure they are on the path to maximizing success. In an era where data reigns supreme, the product profitability report is an invaluable tool that transforms data into actionable wisdom.