Calculating and Reporting Customer Profitability

KEY FINDINGS

Background and overview of customer profitability initiatives at participant organizations

• At best-practice organizations, customer profitability is owned by marketing, with finance as a key stakeholder.
• Study participants have defined a small, dedicated group of two to five individuals who are involved in calculating and reporting customer profitability.

• Best-practice partners have developed an enterprise-wide view of the customer.
• Best-practice partners have clearly defined customer segments and sub-segments. Most have developed five to nine macro customer segments.
• Best-practice partners use multiple bases for customer segmentation such as needs, geography, and customer profitability.

• Best-practice organizations capture revenues and costs at the transaction level for each specific customer account.
• Best-practice organizations take a holistic view of customer profitability and include lifetime value and customer valuation metrics in the calculation.
• Best-practice organizations include the majority, but not all, of their costs in the customer profitability calculation. Best-practice organizations use appropriate methods for cost assignment.
• Best-practice organizations all work closely with IT. Enabling technologies for calculating customer profitability include data warehousing, CRM systems, data mining, external databases, and predictive analytics.

• At best-practice organizations, customer profitability information is used as an input in many areas.
• Best-practice organizations emphasize intelligence (e.g., decision support), not routine reporting, in customer profitability information dissemination.

• Best-practice organizations secure buy-in from the users and upper-level support for customer profitability initiatives.
• Best-practice organizations hold employees accountable for customer profitability.
• Best-practice organizations use customer profitability and segmentation to appropriately align sales and marketing resources.
• Best-practice organizations have specific programs/sales efforts geared to their most valuable customers.
• Best-practice organizations successfully convert unprofitable customers to profitable customers.

• FedEx Services
• Marriott International
• North Shore Credit Union
• Wachovia
• Zippo