The Good, the Bad, and the Ugly: Understanding Customer Profitability
In This Chapter
Knowing how profits are distributed among customers
Distinguishing household from customer profitability
Understanding customer value over time
Using customer profitability in marketing
Your customers vary widely with respect to how much they contribute to your bottom line. In Chapter 9, I talk about the importance of keeping your loyal customers happy. You generally find that your most valuable customers are among your most loyal ones — but not always. You may find that you have apparently loyal customers who aren’t contributing a great deal of revenue.
In trying to understand customer profitability, it’s not enough to just look at their total spending. You need to take into account costs and discounts. Revenue is not the same as profit. This means that customers who buy a lot of products from you may not always be your most profitable customers.
Revenue Isn’t Profit: Accounting for Costs
There’s an old joke about a businessman who was so focused on generating sales that he kept discounting ...