Market position
The relationship between a company and its customer is affected by numerous factors. Competition, industrial growth, and even company’s offerings have an impact on customers. In order to fully comprehend the company’s position in the market, brands often conduct a thorough analysis for customers. From understanding brand reputation among customers to assessing customer journey with customer lifetime value, a brand can deep-dive into every customer’s contribution in the company’s growth. In this line of thought, another important aspect that brands should calculate is the customer profitability.
Customer contribution
Customer profitability (CP) refers to the profit a company earns from serving a customer group over a period of time. This profit is calculated as the difference between the total earnings against the cost spent on building customer relationships. While in the eyes of the business, every customer contributes to the profits of the company, there are a few consumers who deliver higher profit margins to the company with lower operating costs and vice-a-versa. CP is an exercise that helps brands identify these customer groups to strategise their marketing activities better. 
Five different aspects
Understanding CP has become an integral part of every brand’s marketing activity. The need to understand customers is more important now than ever due to several external factors including consumer awareness, volatility of customer loyalty, and rise of competition. As a result, companies look at CP as a way to manage and analyse five different aspects of an organisation
1. Sales
Although sales amounts to revenue and profitability, measuring CP allows brands to understand the performance of each sales channel. With this knowledge, companies can understand where and who the profitable customers are and realign the investment in each channel. Companies can also manage the profit margin and create a defined plan to acquire more profitable customers.
2. Services
As CP points the profitability of a specific customer or customer group, understanding the impact of customer service on CP is vital to the organization. Altering service levels based on the channel of communication can reduce cost by decreasing the level of service provided to customers who contribute marginally to the company’s growth. The key to addressing this problem with CP is two-fold - how much change is affordable by the company and whom the change effects.
3. Product
Product management and customer profitability go hand-in-hand. Understanding CP based on products help companies with several aspects including cost, product discounts, product performance, etc. CP allows product managers to look beyond pricing decisions by showcasing product interdependencies through the eyes of the customer. This information is invaluable to interpret customer value better.
4. Operations
CP has the potential to throw light on the critical aspects of operations. As companies focus on optimising process efficiency, CP shows insights into those customers who are affected by such internal changes. With CP, corporations can also understand which processes are adding more value to the company thus emphasizing on the direct correlation between operations and customer value.
5. Finance
Business planning often takes into consideration only parts of customer value. Drawing a line between company’s current value with future potential value based on customer relations can be achieved using CP. By keeping customers as the central measurement to ascertain the future of the company, brands can now allot their finances accordingly.
Read Part 2 here
