What is an example of customer profitability?
Asked 3 years ago
I am trying to understand exactly how customer profitability works, as I am relatively new to e-commerce. I am reading a lot about how to calculate customer profitability, and what those values mean, but I think it would be the most beneficial if someone could help with an example, and how to analyze it?
Geovanni Buckley
Sunday, October 31, 2021
Customer Profitability means the profit a company earns through a customer. Customers considered to be profitable are those whose revenues exceed their costs by a satisfactory amount.
Let's take an example. You have one customer, David. The per-person cost spent on customer acquisition, serving, and selling is $20 per annum. Considering the sales generated by David, which is $25, we can say that his customer profitability is $5. Take the same example to calculate for a large group and divide the sales per customer by total sales.
So, to maximize customer profitability, you should consider optimizing your customer acquisition costs to keep them to a minimum and consider vending the online products with the highest profitability margins.
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