When a company's earnings are derived from a limited number of customer accounts, products, markets, delivery channels (e.g., branches/stores/other delivery points), and/or salespeople, these concentrations result in significant net income risk that can be quantified.
The concept of profit risk is loosely akin to the well known "80/20" rule or the Pareto principle, which states that approximately 20% of a company's customers drive 80% of the business.
[8] According to Rich Weissman,[9] it is true that this small group of customers dominate the income statement, but the old "80/20" rule no longer applies.
"There are real-life examples where financial institutions have seen profit risk ratios as high as 300 percent.
The data in these systems can be analyzed and grouped to gain insights into profitability contribution of each customer/member, product, market, delivery channels, and salespeople.