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