Customer Profitability Analysis

Customer profitability analysis measures the amount of profit that a customer generates. It can be calculated by looking at the revenue that the customer generates and subtracting the costs associated with servicing the customer relationship. The costs that are calculated should include marketing costs, cost of production, packaging, logistics and more.

It is important to measure customer profitability because it has been seen that the top 20% of the profitable customers tend to bring in between 150% to 300% of the total profits. Customer profitability analysis can be done at an individual level, at a segment level and at an aggregate business level depending on the specific objective at hand.

Segmenting customers from highly profitable to not profitable can help in creating more targeted marketing activities. This means that a marketer can actually spread the marketing dollars in proportion to the segments from where the larger profits are coming in from. Marketers can also choose to use differential pricing in order to ensure that those customers who are not profitable at break even.

A simple way to measure the ROI that Mineful can provide your organization is to see the different in retention rates before and after Mineful was used. A small 5% increase in customer retention can lead to a 75% increase in profits. So what are you waiting for, isn't it time to take action?

To see our list of customer analysis examples and the top 10 customer metrics businesses should track visit our Customer Analysis Examples page.