Customer Profitability Analysis
CUSTOMER PROFITABILITY ANALYSIS
Customer profitability analysis (CPA) can be defined as a method used to compare the costs of all the activities used to support a customer or a customer group with the revenue generated by that customer or customer group. It is the analysis of the revenue and costs that relates to the customers which can be determined by considering the similarities and differences in customers’ buying behaviours and customer preferences.
From the definition, it shows three features of customer profitability analysis. First, customer profitability analysis assigns the costs to individual customers rather than products, services or departments. It allows management to determine which of the customer is profitable or if the company should charge a higher price.
Second, customer profitability analysis can be used at aggregate level or disaggregated level. It allows the management to analyze a particular customer or a large group of customer at one time.
Third, customer profitability analysis change from product focus to a customer focus which focus on multiple products sold to a single customer rather than a single product sold to many customers. It will allow management to identify the downstream costs of the customer and thus make a strategic decision on which customer that company want to target.
DIFFERENCES OF CUSTOMERS.
All the customers are different and this can be due to differences in revenue charged to the customers and the differences in costs used to service the customers. Differences in revenue can be arise because customers are charged different prices when the company operates in the different markets, customers are given different discounts, sales volume are different or different products purchased by the customers. Differences in customer costs arise from the way customers use company’s resources by using the downstream activities which can be divided into four customer groups. First, the customers are different because
Customer profitability analysis (CPA) can be defined as a method used to compare the costs of all the activities used to support a customer or a customer group with the revenue generated by that customer or customer group. It is the analysis of the revenue and costs that relates to the customers which can be determined by considering the similarities and differences in customers’ buying behaviours and customer preferences.
From the definition, it shows three features of customer profitability analysis. First, customer profitability analysis assigns the costs to individual customers rather than products, services or departments. It allows management to determine which of the customer is profitable or if the company should charge a higher price.
Second, customer profitability analysis can be used at aggregate level or disaggregated level. It allows the management to analyze a particular customer or a large group of customer at one time.
Third, customer profitability analysis change from product focus to a customer focus which focus on multiple products sold to a single customer rather than a single product sold to many customers. It will allow management to identify the downstream costs of the customer and thus make a strategic decision on which customer that company want to target.
DIFFERENCES OF CUSTOMERS.
All the customers are different and this can be due to differences in revenue charged to the customers and the differences in costs used to service the customers. Differences in revenue can be arise because customers are charged different prices when the company operates in the different markets, customers are given different discounts, sales volume are different or different products purchased by the customers. Differences in customer costs arise from the way customers use company’s resources by using the downstream activities which can be divided into four customer groups. First, the customers are different because