Customer Profitability

 

 

In order to understand customer profitability, we first need an accurate customer database that can tell help us to profile our customers by demographics, sector, psychographics, behavior or by other meaningful parameters.

We then need to analyze revenues, costs and profits for each segment to understand our most and least profitable groups.

Not all customers are created equally. Traditional Direct Marketing techniques can lead us to ignore customer segments who are unprofitable at the first sale, but who may become extremely valuable at a later date. Customer Lifetime Value metrics help us to build fuller value-based models.

Metrics Covered: Retention Rate/ Churn Rate.

Note: The Key Customer Lifetime Value (CLV) metric is covered in the next page of the Dummies guide. New customers normally cost more to acquire, while repeat customers usually cost us less to service.

Retaining customers and nurturing relationships is therefore often a critical component of customer profitability.

Metrics: Retention Rate/ Churn Rate

The Question:

How many customers do I keep or lose a year?

Approach:

Repeat customers/ cancelled customers as a percentage of total

Commentary:

Understanding retention and churn rates are vital for subscription-style businesses, but are useful for almost all businesses since the costs of acquiring a new customer are usually much higher than the costs of keeping a current customer

The Formula:

Retention Rate (%) = Repeat Customers / Total Customers

Churn Rate (%) = Lost Customers/ Total Customers

 

Sales & Marketing

• Marketing Industry, Marketing Trade
• Sales Industry, Sales Trade
• The Sales Funnel

Marketing for Dummies Guides

• Marketing for Dummies
• Marketing Plan
• Marketing Strategy
• Positioning
• Differentiation
• Brand Equity
• Brand Marketing
• Direct Marketing
• RFM – Recency Frequency Monetary
• Breakeven Response Rate
• Customer Profitability
• CLV – Customer Lifetime Value
• Loyalty Program
• The 4 Ps
• The Campaign Framework
• The Marketing Budget
• The Marketing Mix

Measuring, Marketing, Metrics & KPIs

• KPI – The One Key Marketing Metric
• Marketing KPIs and Metrics
• Measuring Marketing
• ROMI – Return on Marketing Investment
• Marketing Finance
• Financial KPIs
• Market Share
• Mind Share
• Customer Satisfaction (Cust Sat)
• Net Promoter Score
• Kano Model

Online Marketing/ Digital Marketing

• CPM Advertising
• CPC Advertising
• CPA Advertising
• Click Through Rate (CTR or Click Thru Rate)
• Conversion Rate
• SEO Marketing
• SERP: Search Engine Ranking Page
• Behavioral Email
• Guerilla Marketing