How can I analyze the customer's profitability?
The customer's profitability analysis compares what has been frightened from the customer versus what was spent. Such analyzes are important for improving your lower line and to ensure that sales efforts are in the right direction. If you want to analyze the customer's profitability, you will need to select a client for analysis, build information about the sale for this customer for a specified period of time, and collect data on all expenditure associated with these sales. You will have to include not only hard costs such as materials and products production, but also soft costs, such as customer service and account management time. Then you compare these numbers to see exactly how profitable the relationship was.
You want to start the customer's profitability analysis, select the client, and determine the time period for analysis. It can be one or more specific transactions; the calendar period, such as the year; or the life of a relationship. Collect all sales data from the time period you select. This daThis can be pulled out most from past invoices or from your accounting system.
The next step is to build cost data over the same time period. The stronger the project management process, the easier this step will be. You will need to assemble invoices or costs for all physical goods or parts and time for machinery. If you have not received a deposit, you will also need to collect costs for the time worked, cost storage and the cost of carrying capital. Some businesses apply the formula to add value to the work, which assumes that these costs would be incurred regardless of whether the work was carried out and thus charging work lower than the actual rate.
Complete the Customer's profitability analysis by deducting total costs of total sales. If this number is negative, you have lost money. If it's positive, you earned money. You want to find profits the rate, splitLit the profit number by the total sales number. Compare the resulting number with the rate of other customers and your goals for this customer.
Keep in mind that you should set the level of acceptable profitability for each customer. In some cases, this could be a specified percentage for all customers. In others, it may vary according to the customer or vary depending on the situation of your company. For example, you could be willing to accept a new client for a low profit if there is a potential to increase profitability. However, if you find that profitability does not increase over time, you may want to let the customer go, or at least stop actively requiring its business.
Similarly, when your company is new, you can be willing to accept a low return so you can build a customer base and keep your business above water. However, as you become self -sufficient, you may find that customers with low profitability are better replaced by other clients who are more profitable. AnalThe customer's profitability can help you make these decisions.