Customer Profitability Analysis

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Should a firm focus primarily on the customers who are ready to pay a higher price? Are those customers the most profitable to the firm? Is that always the case? If not, how can firms overcome this bias? WHAT IS CUSTOMER PROFITABILITY ANALYSIS? INTRODUCTION Firms typically employ a Cost-plus Approach or a Perceived Value Approach to pricing their products and services. Usually it seems only logical that the customers (or 'accounts') who are willing to pay the highest price should be the firm's topmost priority. However one should keep in mind that the costs to serve each customer type often differ considerably, and hence their profitability also differs. So forms should not simply focus on the highest revenue yielding customers, but are better off understanding customer profitability before choosing target audiences. Customer Profitability Analysis (CPA) is a marketing and management accounting method, allowing businesses to determine the profitability of each customer or segme (...) Read more? Sign up for free

		rustenburg Business Consultant, Netherlands
	Customer Profitability is More Than Bookkeeping Customer profitability is the result of customer s (...)

		Jaap de Jonge Editor, Netherlands
	The Benefits of Keeping Customers Good point. As the article also mentions briefly, (...)