6am waiting for the coffee to kick in!
One of the least understood issues in business is Customer Profitability (CP)but if it is better understood can make the difference between maintaining long term customer relationships and creating lifetime value for an SME.
What is it? CP is an understanding of how much margin a customer will yield for the company calculated from the cost to service that customer. For example you make widgets for Company X, each widget is sold for $Y and you have such a great handle on your costs you know it costs $B to make and service the customer, the difference between $Y and $B is basically your CP for that customer, and one thought here is that not all customers are created equal and some cost more and others less and therefore the CP will vary. If you know this for each product, or service, for each customer you know their profitability.
If you are a manufacturer it is the same, importers too can better improve their own profits by understanding CP.This then dovetails nicely into ‘Lifetime Value’ which is a measure of the contribution of margin of a customer over the life of the relationship. If you think it is going to be a long and profitable relationship you may tend to price more competitively than if you think they are a one order stand.
Once you know the LTV and CP you can make better decisions about whether a customer is worth keeping, nurturing or dumping.
Need help with this. Look no further O8 Love to talk CP and how it can benefit your business.