Measuring Marketing

Chapter 25 Customer Profitability

Measurement Need

Customer profitabilityi measures whether the resources used (time, financial, effort) yield positive results.

Solution

Customer profitability models measure total revenues and total costs for customers during the period of time being measured, helping drive resource allocation decisions for individual customers. Calculating revenues minus costs attributable to each customer is sufficient for determining profitability:

$Customerprofitability=r_t-C_t$

Where

rt = revenues from the customer during time t

ct = costs incurred to acquire and support the customer during time t

To illustrate, assume a consumer products company is interested in knowing customer profitability, but not at the ...