Customer-profitability analysis uses activity-based costing to determine the activities, costs, and profit associated with serving particular customers. Suppose, for example, that customer X frequently changes its orders after they are placed, but customer Y typically does not.
- 1 What is customer profitability analysis and how might it be used in logistics?
- 2 How do you use customer profitability analysis?
- 3 Why is customer profitability analysis important?
- 4 What is customer profitability with example?
- 5 What are the needs of customer profitability analysis?
- 6 How do you do profitability analysis?
- 7 What is the meaning of customer profitability analysis?
- 8 How can customer profitability analysis be improved?
- 9 What is customer profitability segmentation?
What is customer profitability analysis and how might it be used in logistics?
Customer Profitability Analysis (in short CPA) is a management accounting and a credit underwriting method, allowing businesses and lenders to determine the profitability of each customer or segments of customers, by attributing profits and costs to each customer separately.
How do you use customer profitability analysis?
Each of the key steps in this process is outlined below.
- Step 1 – Customer segmentation.
- Step 2 – Revenue attributable to each segment.
- Step 3 – Use ABC to determine the cost attributable to each segment.
- Step 4 – Analyse the profitable versus the less profitable or unprofitable.
Why is customer profitability analysis important?
Measuring customer profitability is crucially important for continued business success because it helps determine whether certain customers are costing you money rather than making you money. These findings can then help shape and shift your business strategy to keep your initiatives and goals aligned.
What is customer profitability with example?
Customer profitability (CP) 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.
What are the needs of customer profitability analysis?
Customer profitability analysis allows you to segment your customers by their profit contribution to your brand and optimize your marketing, customer service, and operations costs around the customer segments who are the most profitable for your brand.
How do you do profitability analysis?
The Profit Analysis Process
- Divide the price index for the prior reporting period by the price index for the current reporting period; then.
- Multiply the result by the net profit figure reported for the current reporting period; then.
- Subtract the net profits for the prior reporting period from the result; and finally.
What is the meaning of customer profitability analysis?
A customer profitability analysis (CPA) looks at the revenue (or profit) that each individual customer generates. While activity-based costing examines individual cost drivers to determine the profitability of a product, a customer profitability analysis applies this same approach to customers.
How can customer profitability analysis be improved?
4 Tips for Improving Customer Profitability
- Develop a Deeper Understanding of Your Customers.
- Know The Costs-to-Serve Component of Your Business.
- Evolve Existing Customer Relationship Management (CRM) Systems.
- Transforming Customer Profitability is an Evolving Journey.
What is customer profitability segmentation?
Customer profitability is not that simple; it requires you to track and determine exactly what resources within your company are consumed to serve a particular segment. At a minimum, companies should allocate sales, marketing, and customer service costs to lift customer profitability to a new level of understanding.