What are the measurements to be taken to find out the most profitable customers?

Customer profitability measurement is challenging to implement; it draws into question our understanding of who our customers are and how we make profit.

Not all customers are equally profitable. Different customers have different needs, and hence different costs to serve. The overall profitability of a business is a function of the profitability of individual customers and customer groups.

1. Reduce the costs to serve- This can be done by focusing lean techniques and other process-improvement methodologies onto the value-chain activities that serve the customer group or segment. In addition, products and services may be redesigned to drive out costs.

    

2. Increase the price to increase the total revenue obtained.

    

3. Improve the product mix offered to the customer or segment- Tightening the mix to eliminate unprofitable products can improve the profitability of a customer group or segment.