How do I measure the profitability of consumers via segmentation?

Customer profitability segments are segments of customers based on demography, psychography behavior, and geography. Demographic segmentation is based on income, area, age, sex, and marital status. Psychographic segmentation can be based on customers' needs, values, interests, beliefs, attitudes, behaviors, and lifestyles.

Customer segmentation refers to grouping the customers based on their similarities in some way. Customer profitability analysis allows companies to allocate their marketing resources effectively. For measuring customer profitability, several strategies are used; some companies prefer to use the 80-20 rule, which is applied to customer gross margins.

Another approach for understanding customer segmentation is using the allocating cost approach. Many ERP systems offer accounting systems to track and allocate costs to specific segments. Some companies take a different approach, like focusing on customer lifetime value, in which customers are considered an asset.

Customer segmentation is sub-dividing your customers into groups that have similar characteristics e.g: behavioral characteristics.It's helpful in marketing especially when allocating marketing resources.



You can use the 80-20 rule to measure customers' profitability. It means that 20% of customers are responsible for 80% of the profits.

It is quite complex since you'll have to determine how much of your company's resources are being consumed by a particular segment. Some ERP systems have sub accounts features that help to track and allocate costs to specific segments.