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Calculating and Reporting Customer Profitablility
American Productivity & Quality Center (APQC), April 2006, Pages: 131
Study Scope:
Drawing on input from the subject matter expert and secondary research, the APQC study team identified three key areas for research. These areas guided the design of the data collection instruments and were the basis on which the study findings have been developed.
1. Segment customers.
- Sort with various segmentation techniques to identify the “winners” from the “losers.”
- Target marketing and sales efforts to customer segments that improve return on investment.
- Understand the assets and investments required to service customers and customer segments.
- Execute competitive customer value propositions in each customer segment.
2. Understand the cost to service customer segments through the use of cost-tracing methods.
- Recognize the cost differences for servicing customers. Customers purchase online; by mail, telephone, or fax; or by visiting a physical location. They will frequently order in small lots or place large, single orders. The cost-to-serve differences can be substantial.
- Determine the appropriate level of customer support. Some customer segments require substantial support, while others require very little.
- Determine methods to calculate the cost to serve and the incentives that can change customer behavior.
3. Report customer profitability.
- Use customer profitability information to make effective business decisions.
- Establish customer profitability reporting as the foundation for being customer-centric.
- Use customer profitability as a method to drive organizational change.
This final report is organized to correspond with these study scope areas. Chapter 1 summarizes background information and describes the approaches for customer profitability calculation and reporting at best-practice organizations. Chapters 2, 3, and 4 correspond to the study scope. Finally, Chapter 5 describes how customer profitability information is made actionable at best-practice organizations. Greater detail on the practices at any individual best-practice partner can be found in their corresponding site visit summary.
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