Measuring and Managing Customer Profitability

Author: Gary Cokins

The only value a company will ever create for its shareholders and owners is the value that comes from its customers – current ones and new ones acquired in the future. To remain competitive, companies must determine how to retain customers longer, grow them into bigger customers, make them more profitable, serve them more efficiently, and target acquiring more profitable customers.

Customers increasingly view suppliers’ products and standard service lines as commodities. This means that suppliers must shift their actions toward differentiating their services, offers, discounts, and deals to different types of existing customers to retain and grow them. Further, they should concentrate their marketing and sales efforts on acquiring new customers who have traits comparable to those of their relatively more profitable customers.

As a result of this shift from being product-centric to customer centric there needs to be an increased emphasis on measuring current and future potential profitability of products, standard service-lines, channels, and customers. A mind-shift is needed from pursuing increased sales volume at any cost ”¦ to profitable sales volume.

Publication Date: March 2023

Designed For
C-suite executives, Financial officers and controllers, Managerial and cost accountants, Financial and business analysts, Salesforce managers and sales persons, Strategic planners, Board of Directors and Marketing analysts.

Topics Covered

• Eras and issues with managerial accounting
• Basics on activity based costing (ABC)
• Implementing with ABC rapid prototyping
• Calculating channel and customer profitability
• Applying analytics
• Historical versus predictive costing
• Barriers slowing the adoption rate

Learning Objectives

• Recognize why customers are the source of shareholder wealth creation
• Recognize why as differentiation from product advantages is reduced or neutralized due to commoditization, then service level differentiation matters and the customer relationship grows in importance as a competitive advantage
• Identify how to shift the mindset from growing sales to growing profitable sales and to view customers as investments like in a stock portfolio to seek higher ROIs — return on customers (ROC)
• Recognize why the marketing and sales functions need accounting data to better formulate customer account strategies including compensation incentives
• Recognize how to implement, how to measure and manage product, channel, and customer profitability
• Recognize how measured forward-looking customer lifetime value (CLV) differs from calculating historical customer / consumer profitability for B2C industries

Level
Basic

Instructional Method
Self-Study

NASBA Field of Study
Accounting (2 hours)

Program Prerequisites
None

Advance Preparation
None