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What are factors that determine the profitability of a customer?

Asked 3 years ago

I am looking to further understand the profitability of customers so that I do not waste resources on costs spent on servicing a customer who is not profitable for the business. I want to focus on specific customer bases rather than trying to market all of my products to all possible customers. How can this be calculated, and what factors are there to consider when doing so?

Dallas Whitaker

Sunday, October 31, 2021

Customer Profitability Analysis (CPA) refers to calculating the overall revenue generated by a customer. Identifying the profitable customer base allows you to invest your time and energy in focusing on the higher revenue streams rather than the non-convertible audience. Factors like the cost of customer acquisition, selling, and serving are used to evaluate the viability of a customer.

To calculate customer profitability, use this formula:

Annual profit = (Customer's total annual revenue) – (Total costs associated with serving the customer per year)

To lower your costs of customer acquisition - and therefore boost customer profitability - carefully consider your choice of product or service that you offer. Take a look at this blog to make sure that you're making the best choices for the 2022 consumer.

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