How to do Customer Profitability Analysis

How to do Customer Profitability Analysis

The main purpose of doing any business is to generate revenue. Profits come from sales and the one who buys the product or services provided by a business is called a customer. Hence, it is necessary to check whether the customers are profitable for the business or not.

What is Customer Profitability Analysis?
Customer Profitability can be defined as the profit generated by a particular customer in the entire lifetime. It gives companies a measure of the profit generated from a customer as compared to the costs incurred while acquiring and retaining that customer.

Measuring Customer Profitability
CPA is calculated by subtracting the cost of acquiring and keeping the customer, from the revenue generated by that customer in a lifetime.

Here are the steps to be taken while doing the Customer Profitability Analysis:

  1. Do the Market Segmentation: Market Segmentation means that you divide your customer base into different groups based on their demographics.
  1. Calculated the Lifetime Revenue generated: Calculate the revenue generated from the customer in one year and multiply it by the number of years the customer is expected to stay with you.
  1. Compare the results: The final step is to compare the results of the different market segments and analyze them. This Analysis includes deciding upon which segment you need to let go of and which segment you need to give more attention to increase profitability.

Why is CPA important?
CPA is important because of the following reasons:

  1. It helps to categorize different segments based on their profitability.
  2. It helps to avoid losses due to unprofitable customers.
  3. It gives an insight into how different strategies are working for different market segments.
  4. It helps to see which segments the business should continue with and which segments should you let go of.

Every business needs to do a Customer Profitability Analysis (CPA) from time to time to keep the business profitable. This can be done quite easily by using the services provided by the Boston Financial Advisory Group. Boston Financial Advisory Group (BFAG) eases this process for you and guides you to achieve the best results from a wide range of Financial Analytics.

The experienced professionals at Boston Financial Advisory Group use different technology-oriented services to strategically enhance the business they work for. They provide businesses with 24×7 secure access to their data. BFAG has vast and profound experience that makes it a lucrative choice for clients.

BFAG (Boston Financial Advisory Group) provides the best accounting and financial services. We have a team of experienced professionals who can help you in maintaining your books of accounts.

So, get in touch with us to avail of our services.
Contact us in case of any assistance or queries.

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