Customers are a company’s primary asset, as they are solely responsible for every penny of revenue. As marketing activities become more precisely targeted to consumers through direct and interactive forms of communication, customer profitability takes on a central role in the development of marketing strategies. Nowadays, customer-profitability analysis become very important – especially for companies that embrace customer relationship ideas. Without it, the interpretation of CRM failures or successes are mere speculation.
The two essential ingredients of every customer profitability analysis are customer acquisition and service costs. Like product costs, sales/marketing/service costs are also collected in accounts separate from customers, even when they result from direct company/customer interactions.
Customer profitability analysis gives an organization the essential information for choosing what to do, with whom and how. It will help you to understand:
- How many of your customers are profitable
- How dependant you are on the most profitable customers
- What proportion of your resources the most profitable customers consume
- The full cost of servicing a customer, including advertising, marketing, administration and after-sales service
- Which customers your competitors are targeting
Failing to implement customer profitability analysis will lead to distortions. Profitable customers are lost through overpricing, unprofitable customers won by under pricing, and unprofitable customers subsidized through profitable ones. In short, customer relationship management becomes a pipe dream, as it is not possible to manage what cannot be measured. To remedy this situation companies have to focus on restoring the connection between customers and costs.
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MS Excel Template – Customer Profitability Analysis
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