5.4 Profitability With New Customers
Let us see what happens to your profit from customers if you replace customers in your bottom market segment with new customers who are members of your top market segment (Figure 4):
- The top 20% of your customers (your top market segment) would still generate 80% of your prior profit from customers for a fourfold return (i.e., 80%/20% = 4).
- If you replace the bottom 80% of your customers (your bottom market segment) with new customers who are in your top market segment, they would generate 320% of your prior profit from customers (i.e., 4 × 80% = 320%). Thus, your new customers would be 16 times more profitable than the ones they replaced (i.e., 320%/20% = 16).
- Your total profit from customers would now ...