Understanding customer profitability? Easier than you think!
Coming up with a good strategy for the future of your organization: a cool theme where you can make a difference in your business together. But it is also a topic on which companies with many customers and target groups spend a lot of time and energy. In this blog, using terms like customer profitability and Cost-to-Serve (C2S), we want to show you that it can be simpler!
What is customer profitability and Cost-to-Serve?
To make good strategic decisions, you can look at customer-level profitability: customer profitability. Another important concept here is the "Cost-to-Serve. These are the direct costs such as production and shipping, but also indirect costs. Here you can think of the costs for marketing and activities around customer service that you incur per customer. Customer profitability and C2S go hand in hand when creating insight into your organization.
Take, for example, a factory that specializes in manufacturing auto parts. Some customers buy large quantities of one specific part, while others purchase a wider range of parts, but in smaller quantities. At first glance, it may seem that the customers who buy large quantities are the most profitable. But when you start looking closely at the costs of customer service, shipping, in short, your Cost-to-Serve, the picture of profitability per customer can be quite different.
Cost-to-serve and the right tools
To identify these connections, you can use data analysis tools and customer segmentation methods. For example, these tools can reveal patterns in customer behavior and spending. Customer segmentation, putting customers into different groups, can help you understand which customer groups are most profitable. A combination of both can create valuable insights into your Cost-to-Serve. These insights help you make better decisions and optimize business strategy.
Plotting a good strategy for the future can seem complex, but with the right methodology and associated tools for gaining insights, it's much simpler than it seems.
Got curious?
In our webinar "the 7 steps to understanding customer profitability," we'll take you through our roadmap to understanding your customers' profitability. And we discuss the 7 steps to gain insights that will help your organization make the right strategic decisions. Watch the webinar directly via this link!
