CUSTOMER PROFITABILITY ANALYSIS

DEFINITION

Activity-based costing technique - may be used

Customer profitability analysis - The costs of all the activities used to support a customer or a customer group and compared with the revenue generated by that customer or customer group.

Customer cost analysis – Analysis of the costs of

products purchase by the customer as well as the cost of any other customers – driven activities from any part of the value chain.

HOW DO CUSTOMER DIFFER?

• An additional features to be added to products Customization

of products• Develop interesting advertisement to

attract customerMarketing and

selling activities

• Offering products to customer by various distribution channelsDistribution

channels• Levels of support are offered to

customer including technical support, training, on-site visit and help lines.

Customer support

activities

HOW DO CUSTOMER DIFFER?

CALCULATING CUSTOMER COSTS

Customer –driven activities can help to assign costs to customer more accurately.

Order level activitiesCustomer

level activities

Market level activities

• The order is placed by customer.

• Acquiring a new customer and maintain existing customers.

• Analyzing customer needs, develop new technologies to satisfy customer to maintain a presence in particular market.

CUSTOMER PERFORMANCE MEASURES

Market share

Customer profitability

Customer acquisition

Customer retention

Customer satisfaction

CUSTOMER PERFORMANCE MEASURES

WHY CALCULATE CUSTOMER PROFITABILITY

Allows managers to make a series of strategic decisions about which customers, markets or distribution channels to focus on.

Helps to identify areas for cost control and cost reduction.

Provides a different perspective on the profitability of the business.

WHY CALCULATE CUSTOMER PROFITABILITY

Which customers generate the greatest profits? And how can we retain those

customer?

Which customer generate the lowest profits? And what can we do to make

those customer more profitable?

On what types of customers should we focus

our business efforts in order to maximize

profitability?

CUSTOMER PROFITABILITY EXAMPLE

CUSTOMER PROFITABILITY EXAMPLE

CUSTOMER PROFITABILITY EXAMPLE

CUSTOMER PROFITABILITY EXAMPLE