Customer Profitability measures the net profit from individual customers, guiding Product Managers in resource allocation and strategy tailoring to maximise value from profitable segments and improve less lucrative ones. It drives strategic decision-making in product development and customer service, fostering sustainable growth by nurturing profitable long-term relationships.
Methodology:
- Identify and segment customers,
- Calculate revenue per customer,
- Determine direct and indirect costs,
- Calculate the net profit per customer,
- Analyse and interpret the results,
- Implement, monitor, and adjust.
Benefits:
- Enhanced resource allocation,
- Improve pricing strategies,
- Focused customer service and retention efforts.
Limitations:
- Complexity in comprehensive cost attribution,
- Risk of short-term focus,
- Potential neglect of less profitable segments.