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What is Customer Profitability and Why Should We Measure It?

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❶What Is Diversification Analysis? Product profitability also needs to be considered.

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What is profitability?
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What is a customer?

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In both instances, the companies performed a customer profitability analysis to determine if certain groups were causing more harm than good. In these cases, the old adage, the customer is always right certainly does not apply.

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customer profitability analysis - noun analysis of the revenues and costs associated with particular customers.

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Aug 22,  · A customer profitability analysis is an evaluation process that focuses on assigning costs and revenues to segments of the customer base. The customer profitability definition is “the profit the firm makes from serving a customer or customer group over a specified period of time, specifically the difference between the revenues earned from and the costs associated with the customer relationship in a specified period”.

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Topic Gateway Series Customer profitability analysis 8 2. Managing customer value Analysing customer profitability has evolved into managing the overall value of customers. CPA now includes analysing customer lifetime value and impact, as well as managing profitability through analysis of customer segments and margins. The first step in analyzing customer profitability is to sort your annual sales by customer in descending order. You will notice that the top 20% of customers generate 80% of your sales. Therefore, 80% of your customers only account for 20% of your sales.