Running a business is rarely straight forward. There are many moving parts to consider before you measure customer profitability:

According to Wikipedia, Customer Profitability Analysis (CPA) is a management accounting and a credit underwriting method, allowing businesses and lenders to determine the profitability of each customer or segment of customers, by attributing profits and costs to each customer separately.

When you measure customer profitability, you improve customer profitability

Markets change on a routine basis

Customers’ behaviour changes due to a variety of reasons

New/competing products are introduced on a routine basis

Competitors can alter their strategy

Raw material costs are constantly changing

Manufacturing productivity can be lost or gained

Many of these changes are beyond your control but must be managed on a proactive basis. All of these factors can impact your customer profitability,making it one of the biggest challenges management faces.

The Importance of Customer Profitability:

The ability to measure customer profitability is rarely a simple task. In some areas, your customers might all pay similar prices for the product or service you provide. However, in many cases, there will be additional segments of your business where it’s more complicated than that. The prices you charge are subject to discounts, long-standing relationships and competitive pressures.

Larger customers may have been given concessions over time that actually makes their business unprofitable to service.In other cases, smaller businesses might really need you, but are in a position where they can’t pay higher prices. And then, there are those unicorns who will pay the prices you set and agree to increases when you announce them.

With that mixture – and more – of different customer situations and needs, it can be difficult to accurately measure customer profitability. It is even more difficult is to identify the reasons for a gain or fall in profitability over time.

Uncover the Key Reasons for You Customer Profitability Problems

When it comes to analyzing customer profitability, many businesses face a myriad of issues. Due to the dizzying number of variables that affect customer profitability, it’s increasingly more difficult to identify a problem or problems.

It’s time consuming

Collecting data from multiple systems and spreadsheets is time intensive and that’s before you’ve tried to decipher the often confusing, but not always relevant results they provide.

It Can Be an Error Prone Process

When people are responsible for selecting, consolidating, inputting and uploading data into a spreadsheet, mistakes are often made. That effects the analysis, in some cases making it completely incorrect. When these mistakes occur, the resulting analytics cannot be trusted. Many organizations produce conflicting reports or produce results that the business doesn’t believe.

The Granularity of the Data

It can also be difficult to get the level of detail required to make the resulting data actionable. If all goes well and the analysis shows you the sector, region or customers that are responsible for the unexpected fall in customer profitability, that’s helpful. More detailed information is required, however, to understand how profitability is being impacted AND to how act on it. Without this level of detail, you’re still in the dark about how to improve the situation.

With the right data analytics solution, it immediately becomes easier to analyze a variety of scenarios in a matter of minutes. No need to chase and consolidate data from multiple systems. The data has already been cleansed, so you know it’s right. Most importantly, the data can be viewed at any level of detail. Summary data can help you identify patterns. Detailed data can be used to assist in the decision-making process.