Performance Management Solutions

Customer profitability analysis

The ultimate profit centre in any company is the point of exchange between you and your customers.

If there is no transaction, there is no revenue and ultimately no business.

Central to customer profitability analysis (CPA) is the ability to flow all relevant costs forward to the point of exchange with the customer, where it is matched with customer revenues.

CPA is therefore able to identify true profitability and provide drill-back to explain the reasons why.

Conventional costing fails to do this. Once customers that are costing more to serve than the margin they generate the answer is simple; manage customers as a portfolio just as you would a product portfolio.

Costing customer behaviour

There are often multiple points of contact between a supplier and their customers.

At each contact point how you choose to serve your customers, and how your customers choose to behave can directly influence both the cost to serve and customer profitability.

Customer portfolio management

This is the ability to modify the trading relationship between you and your customers in such a way that your margins are enhanced to an acceptable level without taking undue commercial risks and would include such techniques as:

• Customer re-engineering
• Activity based cost management
• Commercial strategy review
• Pricing analytics

Customer profitability and Activity Based Budgeting

Conventional budgeting tends to focus on projected revenue, rather than on the projected customer profitability.

Customer profitability analysis is central to credible Activity Based Budgeting.