Measuring the profitability of credit
This will help to determine the structure, resources, direction and development of the sales effort, enabling the business to develop its activities.
To achieve this, customer analysis should highlight profit per customer, identifying the best and least profitable customers. It is also important to understand the characteristics of the most profitable customers, both tocontinue to meet their needs and to support tailored marketing campaigns that will attract the right customers.
Customer profitability can be measured by analysing two things: customer revenue and customer costs, including defection and retention costs. Some of the most important are listed in Table 12.1. Identifying the most and least profitable customers enables current and future initiatives to be targeted at the most profitable customers. It may also allow the business to find ways of reducing the costs of doing business with the least profitable customers.