Chapter 11

Assessing the Profitability of Customers

Not all customers are good customers. Eliminating unprofitable or marginally profitable customers is a component of effective revenue management. Many sellers are not particularly discriminating; one author reports that 79% of business-to-business companies respond to all customers.1 There is often a cost to responding to all customers because optimal revenue management seeks customers who will result in profitable sales. This chapter discusses how to assess which customers are valuable and which are not.

The 80-20 rule is well known: In general, 80% of one’s business will come from 20% of customers. This rule does not imply that one should pay attention only to big customers, many of whom ...

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