Businesses in Tanzania can monitor their profitability using TallyPrime. You can view your costs by products, sales by customers, income & costs by branch. Using stock reports, sales reports and item costing reports gives you a clear insight into where your profits are coming from. Correctly recording transactions and allocating your costs will give you an accurate result.
Why Track Profitability?
Understanding the profitability of your sales will help you decide if you are making a good return from them. This is useful for Tanzanian retailers, wholesalers and distributors to help make decisions on pricing, stock control, customer relations and growth. Regular monitoring can also help identify any financial issues that may occur.
Sales vs. Profit
Sales are the turnover made on the sale of goods/services. Profit is what remains when you have subtracted the appropriate costs and expenses. For example, a distributor in Dar es Salaam may make high sales but low profits due to discounts, delivery costs and high buying prices.
Where Businesses Lose Profit
Your profits can decrease due to increased costs of goods, over-discounting of products, damage to stock, delivery costs and inefficient processes. This may be overlooked by businesses if they only look at their overall sales figures. By looking at the costs of your products, customer activity and costs per branch you can see where your margins are being reduced.
Understanding Profitability
To analyse business performance in TallyPrime you first need to understand how revenues, direct costs and operating expenses impact on profit. It is vital that your accounting is accurate to ensure your profitability reports are accurate. You also need to ensure you are using the correct method of calculating these figures to answer your business questions.
Revenue and Gross Profit
Revenue is income gained through sales. Profit can be calculated by subtracting costs of goods sold from total sales (net sales). If a product is sold at TZS 100,000 and the costs of making it were TZS 70,000 then your profit would be TZS 30,000 before any other costs.
Operating Expenses and Net Profit
Operating expenses are your salary, rent, utility bills, administrative costs and all other business costs. The net profit is the profit left after you take account of any expenses, incomes or charges. This helps prevent businesses from assuming that gross profit was their total profit.
Product, Customer and Branch Profitability
These three measures answer different questions:
- Product profitability: Which items generate the strongest margins after relevant costs?
- Customer profitability: Which customer relationships contribute the most after associated costs?
- Branch profitability: Which locations perform best after their allocated income and expenses?
Reliable comparisons require consistent cost definitions and appropriate allocations.
Track Product Profitability
Analysing product profitability gives you insights into your product lines by helping you assess the profit made on each individual product in your stock and how much margin they are providing. TallyPrime provides useful insights with its Inventory and Accounting reports. To get accurate results, it is important that you have accurate data on what you have paid for your purchases, what has been sold and how any related expenses have been handled.
Identify Profitable Products
You can use sales revenue, cost of goods sold, gross profit and gross profit margin to compare products. High sales figures do not necessarily mean that you will have high profitability. So a product with low sales could produce higher margins and therefore more profit per item.
Compare Sales and Costs
Compare your selling price to the associated buying or manufacturing cost, including any apportioned costs like delivery or handling. This is important to Tanzanian importers/distributors as extra costs can have a big effect on the actual margin they get on imported products.
Use Stock and Sales Reports
The TallyPrime Stock Summary lets you see an overview of your stock and inventory values whilst the Sales Register will show you the level of sales made on each individual transaction. Whilst these reports can enable businesses to analyse their inventory and sales they may not show you an accurate and fully allocated net profit for each product.
Analyse Item Costs in TallyPrime
TallyPrime gives you features to analyze item cost. This helps you to understand the economics of your product by knowing the details about item costs and revenue of your stock items. The utility will depend upon transaction details, costing setup and cost entered for the item.
Improve Product Pricing
Look at your pricing, purchasing strategy and discounting policy based on the profitability of products. If an item is regularly underperforming look into understanding the suppliers’ costs, any waste and delivery costs. Take into consideration what the market will support. Decide if you need to increase the price or remove it from your range.
Track Customer Profitability
Customer profitability analysis goes one step further than identifying customers that buy the most by looking at income less relevant discounts, delivery costs, service costs and other costs that can be attributed to customers. This helps a business identify the customer relationships that are generating the most sustainable profit.
Identify Valuable Customers
Customers who order a lot can be very profitable, however you may have to give them large discounts or make expensive deliveries. Using the sales values, gross profit contributions, payment patterns and relevant delivery costs will help give a more accurate view for management.
Analyse Customer Sales
Sales ledgers, sales vouchers and Sales Register are useful to give insight into your transactions and sales. Look at how frequently they purchase, how much they spend on each order and sales trends. This will provide insights into their activity, although these may not give you a complete picture of how profitable the customer is.
Account for Discounts and Costs
Allow for sales discounts. Where accurate information can be obtained, allow for delivery, returns, credit administration and other attributable costs. A consistent approach to allocating costs will add value to the calculations of customer profitability.
Review Customer Performance in TallyPrime
TallyPrime provides information on your customer ledger and sales reports that you can use to look at what transactions you’ve had with your customers. To work out the profitability of each customer, further analysis may be required as there is no automatic allocation of costs to individual customers. The detail available will depend on how the report has been set up and the accounting procedures in place.
Improve Customer Profitability
Customer analysis allows businesses to look at any discounts, order levels, delivery and payment they offer. They might be able to negotiate better delivery times and create price rules based on order size. This helps to increase the contribution from customers while not affecting good long-term relationships.
Track Branch Profitability
Branch profit analysis will help a business to look at how each branch is performing financially. If a company has several branches in Dar es Salaam, Arusha, Mwanza or other centres of commerce in Tanzania then there must be consistent accounting methods. This means that income and expenditure of relevance to each branch can be traced.
Compare Branch Performance
Compare the revenue, gross profit, operating expenditure and net profit of the branches. Whilst a higher revenue could be obtained from one branch, this may be offset by additional costs such as higher rental, staff costs, delivery costs etc. This will show you the profits made from each branch.
Track Branch Income and Expenses
Ensure that any branch-based transactions are kept in a structured way. Try to allocate sales, purchases, salaries, rent and any other relevant expenses to the correct branch. If there are any shared expenses you must have a clear method of allocating these so you can make valid comparisons between branches.
Use Cost Centres in TallyPrime
TallyPrime can be set up to provide cost centre reporting. Cost centres can be used to monitor income and expenditure by specific units within your business. These can be used for different branches or activities within the business. The usefulness of this will depend on how you allocate your transactions and if it fits with your business needs.
Allocate Shared Expenses
Costs that will be incurred by a number of different branches, for example head office staff costs, central administration and common transport costs. These should be allocated fairly according to criteria such as usage, turnover etc. Ensure you always follow the same criteria.
Identify Underperforming Branches
Look at branches where margins are falling, overheads are increasing, or losses are continuing. Consider factors such as local demand, staff levels, stock levels and overheads. You should also consider whether you are seeing a short-term problem, as it may not be an indication that your branch is not well run. Compare performance over appropriate periods of time.
Need Help Choosing the Right TallyPrime Setup?
Saali Solutions can help Tanzanian businesses choose the right TallyPrime solution. Consider how many branches you have, how complex your inventory is, how detailed your reporting needs are and whether you need to allocate costs. Get in contact with us for a consultation so we can recommend the right solution for your needs at the best price in Tanzania.
Conclusion
Tracking profitability by products, customers and branches is a key part of Tanzanian business. TallyPrime allows you to produce relevant accounting, stock and cost centre reports that will show you exactly where your money is coming from. However, it is important to make sure that all information is fully recorded and costs are correctly allocated. This will allow you to make much more informed decisions regarding your pricing, customers, stock & branches.
Read more:
How Tanzanian Businesses Can Prepare for Financial Audits Using TallyPrime
TallyPrime vs QuickBooks: Which is Better for Tanzanian Businesses?
FAQs
Can TallyPrime Track Product-Wise Profitability?
Yes. It can do inventory and item costing analysis. How much detail you get will depend on how your transactions are set up and what costing options you have.
How Can Businesses Analyse Customer Profitability?
You will need to look at the sales, discounts and costs attributed to customers. Analysis may be required as the costs will not be allocated automatically at the customer level for all setups.
Can TallyPrime Compare Branch-Wise Profit?
Yes. With the right setup and transactions allocated, cost centre reports can be used to analyse income and expenses between branches.
What Are Cost Centres in TallyPrime?
Cost centres are an accounting tool that can be used to track income and expenditure in relation to specific areas of the business.
Which Reports Help Track Profitability?
Profit and Loss, Stock Summary, Sales Register, item costing and Cost Centre reports will be relevant.
How Often Should Businesses Review Profitability?
KPI’s should be reviewed each month but more regularly if there are any major changes in costs, cash flow or fast moving trading conditions.