Which products or locations actually make money?
Nearly every owner believes they know. Roughly as often, the numbers say something different once the costs are actually assigned.
Tag revenue and direct cost to the segment at the point of entry, allocate shared cost on one documented rule, and read contribution margin and fully allocated profit as two separate answers.
The four places to look
The chart of accounts has to be built for the question
Segment profitability is a structural decision, not a report you run later. If revenue and direct cost are not tagged to the product, service line, or location that generated them from the outset, the answer has to be reconstructed by hand every time — which means it is reconstructed rarely, and trusted less.
Direct costs are assignable. Shared costs need a rule
Materials, direct labour, and location-specific expense belong to the segment outright. Rent, admin, insurance, and software have to be allocated — by revenue, by headcount, by square footage, by transaction volume. Any consistent, documented rule beats no allocation. Changing the rule every quarter is worse than either.
Contribution margin first, then fully allocated
Contribution margin — revenue less direct cost — tells you whether a segment is worth having at all. Fully allocated profit tells you what it truly costs to keep. Both are useful; confusing them leads to shutting down segments that were actually carrying overhead.
Compare like with like
Segments only compare if each is built on the same structure and the same allocation rules. Where locations have drifted apart in how they code things, standardising them is the first piece of work, before any comparison means anything.
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