Customer/Product Profitability
What is driving contribution performance?
Understanding Customer/Product Profitability is vital to your business. You need to know which customers and products are making the largest contributions to the bottom line is critical for better performance management.
By applying expense and allocation formulas, you can determine the net value of each product group or customer segment. Armed with this information, the sales force will better understand their profit priorities and know where to direct their activities to bring in the highest returns.
With the Customer/Product Profitability decision area, you can set planning goals and scorecarding metrics for these elements:
- Average customer profit, lifetime profit, and net profit ($)
- Net sales ($)
- Gross profit ($ and %)
- Customer acquisition and retention cost ($)
- Sales revenue ($)
- Units sold
Most importantly, you can analyze these goals and metrics by a number of dimensions to find the hidden gems in the data underpinning performance management:
- Industry
- Customer location
- Time (year, quarter, month, week)
- Market segment (macro & micro)
- Brand and Product line
- Sales territory and Sales channel
Understanding customer lifetime profitability is vital to a business. It focuses the organization on the value of the long-term customer. Customer/product profitability is a powerful tool that is used at senior levels of marketing and corporate strategy.
Using the Customer/Product Profitability decision area
You set targets based on your goals and metrics in Customer/Product Profitability. You monitor your success by looking at how you measure up against your targets. Further, you dive into your results to find the factors driving performance.
- Average customer profit ($) : What is the average value of this customer segment in terms of company profit?
- Net sales ($) : What is the sales revenue for this product group after discounts and standard costs?
- Customer acquisition and retention cost ($) : What is the average cost of acquiring a new customer versus up-selling to an existing customer?
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