Customer profitability is often taken up by organizations to spot the 'black sheep' of customer base. This becomes a need-of-the-hour when the costs being incurred in maintaining the customers is falling heavy on the revenues being collected. In such cases, a filtering is needed. The task can be successfully accomplished using the concept of BSC (Balanced Scorecard). The indicators to judge the Average Lifetime Value are- discount rate, Retention Cost, Profit margin and period.Customer Retention Potential can be measured via parameters like number of switch barriers, retention rate, customer satisfaction and offers' attractiveness index. This category is useful in knowing the ability of the management in retaining the existing customers. Moving on, the Revenue Collection Perspective can be obtained by utilizing the metrics such as Autonomous revenue surge, cross-selling climbing index, up-selling revenue rise and reference value. Eventually, the Process Performance can be had with metrics such as 'rise in customer segmentation tuning', 'customer margin rise', 'customer lifetime value' and 'scaling customer impact'.
Read Why do business professionals choose ready-to-use KPIs? to find out the answers to these questions:
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Assessment of customer profitability is needed to know which section of customer base is acting as a 'burden' on the collection from the rest of the group. Marketers carry out such studies to spot the 'weakest link' of the chain.
Further, a detailed study on this is done to know whether the organization should stop serving this group or not. In case there does not occur a way out, it is better to put this group of the useful lot.
Successful handling of this topic demands an extremely detailed approach with 'analysis of individual profitability' being the ultimate aim. The results and conclusions are used for implementation of strategy aiming at better customer relation management. The value of this relation will have 'lifetime value of the customer' as its basis.
A logical thought indicates that only if the managers get to know about each customer's contribution that suitable services can be provided to them depending to the customer worth.
To maintain customer profitability, one can utilize a balanced scorecard that has engraved on it the factors (having a bearing on customer profitability) in terms of metrics will serve the purpose of calculating and measuring the steps.
This is the actual scorecard with Customer Profitability Performance Indicators and performance indicators. The performance indicators include: average lifetime value, discount rate, retention cost, profit margin, period, customer retention potential, number of switch barriers, retention rate, customer satisfaction, offers attractiveness index, revenue collection perspective, autonomous revenue surge, cross- selling climbing index, up-selling revenue rise, reference value, process performance perspective, rise in customer segmentation tuning, customer margins rise, scaling customer impact, customer lifetime value.
Download a trial version of Customer Profitability Evaluation Balanced Scorecard or purchase a full version online.
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