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    Customer Profitability: Muthulakshmi Sreya Chandrakala Aishwarya

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    1) CRM refers to managing relationships with customers by using customer data to improve interactions and drive sales growth. CRM systems help organize processes like sales, marketing, and customer service. 2) Customer profitability analysis measures the profit from individual customers. It identifies the most and least profitable customers so the company can reward, grow, or fire different customer tiers. 3) Customer lifetime value estimates the future profit from a customer relationship to assess long-term customer value beyond a single transaction. It helps shift focus from quarterly to long-term customer health.

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    Customer Profitability: Muthulakshmi Sreya Chandrakala Aishwarya

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    Chandra kala
    54 views23 pages
    1) CRM refers to managing relationships with customers by using customer data to improve interactions and drive sales growth. CRM systems help organize processes like sales, marketing, and customer service. 2) Customer profitability analysis measures the profit from individual customers. It identifies the most and least profitable customers so the company can reward, grow, or fire different customer tiers. 3) Customer lifetime value estimates the future profit from a customer relationship to assess long-term customer value beyond a single transaction. It helps shift focus from quarterly to long-term customer health.

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    customer profitability

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    Marketing metrics

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    1) CRM refers to managing relationships with customers by using customer data to improve interactions and drive sales growth. CRM systems help organize processes like sales, marketing, and customer service. 2) Customer profitability analysis measures the profit from individual customers. It identifies the most and least profitable customers so the company can reward, grow, or fire different customer tiers. 3) Customer lifetime value estimates the future profit from a customer relationship to assess long-term customer value beyond a single transaction. It helps shift focus from quarterly to long-term customer health.

    Copyright:

    © All Rights Reserved
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    Download as pptx, pdf, or txt
    54 views23 pages

    Customer Profitability: Muthulakshmi Sreya Chandrakala Aishwarya

    Uploaded by

    Chandra kala
    1) CRM refers to managing relationships with customers by using customer data to improve interactions and drive sales growth. CRM systems help organize processes like sales, marketing, and customer service. 2) Customer profitability analysis measures the profit from individual customers. It identifies the most and least profitable customers so the company can reward, grow, or fire different customer tiers. 3) Customer lifetime value estimates the future profit from a customer relationship to assess long-term customer value beyond a single transaction. It helps shift focus from quarterly to long-term customer health.

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    Customer Profitability

    MUTHULAKSHMI
    SREYA
    CHANDRAKALA
    AISHWARYA
    CRM
    • Customer relationship management (CRM) refers to the principles, practices and
    guidelines that an organization follows when interacting with its customers.
    • From the organization's point of view, this entire relationship encompasses direct
    interactions with customers, such as sales and service-related processes, and
    forecasting and analysis of customer trends and behaviors.
    • Ultimately, CRM serves to enhance the customer's overall experience.
    • It uses data analysis about customers' history with a company to improve business
    relationships with customers, specifically focusing on customer retention and ultimately
    driving sales growth.
    • The focus of CRM is to create value for the customer and the company over the
    longer term
    • CRM System-
    • Customer Relationship Management (CRM) systems are used to organize, automate, and track
    business processes like sales, lead generation, marketing, forecasting, customer service and ROI
    measurement. The purpose of a CRM system is to improve integration in these areas and measure
    and track the value of customer relationships. CRM systems are designed to reach the ultimate
    goals of increased efficiency and profitability.
    Understanding CRM

    • Customer relationship management (CRM) is an approach to manage a


    company's interaction with current and potential customer. It uses data
    analysis about customers' history with a company to improve business
    relationships with customers, specifically focusing on customer
    retention and ultimately driving sales growth
    • CRM approach is the systems of CRM that compile data from a range of
    different communication channels, including a company's website,
    telephone, email, live chat, marketing materials, and more recently, social
    media.
    • CRM approach and the systems used to facilitate it, businesses learn more
    about their target audiences and how to best cater to their needs
    Benefits of CRM
     Increased customer satisfaction
     Improved customer service efficiency and effectiveness
     Increased sales
     Reduced costs
     Growth in number of customers
     Maximization of opportunities and generation of new business
     Increased access to a source of market and competitor information
     Longterm profitability and sustainability
     Loyalty maximization
     Enhanced ability to target profitable customers.
     Enhanced sales force efficiency and effectiveness
     Improved pricing
     Customized products and services
     Individualized marketing messages also called campaigns
     Connect customers and all channels on a single platform.
    Why Customer Profitability?

    • To simply count how many customer the firm serves


    • To summarize the past financial performance of a customer
    relationship , customer lifetime value looks forward in an attempt
    to value existing customer relationship
    • To calculate and interpret customer lifetime value.
    • To accomplished and draw careful distinction between prospect
    and customer value
    • Acquisition and retention spending to track marketing spending
    METERICS

    TO MEASURE THE PERFORMANCE OF INDIVIDUAL CUSTOMER


    RELATIONSHIP

    • Customers,Recency,Retention Rate
    • Customer Profit
    • Customer Lifetime Value
    • Prospect Lifetime Value
    • Average Acquisition Cost
    • Average Retention Cost
    CUSTOMERS,RECENCY ,RETENTION RATE

    • Purpose :To monitor firm performance in attracting and


    retaining customer
    • CONSTRUCTION
    • COUNTING CUSTOMERS
    • Contractual situation :One complication in counting customers in contractual
    situations is the handling of contracts that cover two or more indivduals.A
    second complication in counting customers in contractual situations is the
    treatment of customers with multiple contracts with single firm
    • Non-contractual customers:The ability of the firm to count customers depends
    on whether individual customers are identifiable.
    • Recency:The length of time since customers last purchase
    • Retention Rate:The ratio of the number of customers retained to the
    number.
    DATA SOURCES,COMPLICATIONS AND CAUTIONS

    • ADVICE ON COUNTING CUSTOMERS:


    • Defining the customer properly is critical
    • Not all the customers are same
    • Where is the customer?
    • Who is the customer?

    The key takeaway is that customer definition for counting depends fundamentally on the
    purpose of the count. You may have the count the same customer in different ways for
    different people
    CUSTOMER PROFIT

    PURPOSE : To identify the profitability of individual customer

    The overall profitability of the company can be improved by treating dissimilar customer differently
    In essence three different tiers of customers
    Top tier customer – REWARD
    Second tier customer – GROW
    Third tier customer – FIRE

    A database that can analyze the profitability of customers at an individual level can be a competitive
    advantage.The chance to defend your best customer and maybe even poach the most profitable
    consumers from your competitors
    CUSTOMER PROFIT

    • Construction :Find out the cost serve each customer and revenue assocated
    wth each customer for a given period.Do subtraction to get the profit for the
    customer based on the profit
    • To abandon the notion of calculating profit for each individual customer and
    work with meangiful groups of customers instead
    • Sorted list of of customer profits from high to loe
    • Profitability increase (high to low)
    • Negative profit curve when profit increase 100%.The graph always ends at
    100%of the customer accounting for 100% of total profit refers as “whale
    curves:”
    CUSTOMER PROFIT

    • Data Sources,Complication and Cautions

    • When considering for profit from customer ,most thing change over
    time.The plan is that future profits will compensate for current losses.
    • Capturing customer information to decide which customer to serve ,it is
    important to consider the leagal environment in which company operates
    • Intrusive capturing of customer specific data can damage customer
    relationship
    • Sound finicial reasons to serve the unprofitable customers eg some
    companies relies on network
    • The whale curves examine cumulative percentage of total profits ,the
    number are very sensitivre to the dollar amount of total profit
    CUSTOMER LIFETIME VALUE

    • Customer lifetime value is the dollarvalue of the customer


    relationship based on the present value of the projected future
    cash flows from the customer relationship

    CLV = Margin * Retention rate (%)/1+Discount Rate (%)-Retention Rate (%)

    It encourages firm to shift their focus from quarterly profit to long


    term health of their customer relationship
    CUSTOMER LIFETIME VALUE

    • PURPOSE : To assess the value of each customer.

    • Customer profit (CP)is the difference between the revenues and the cost
    associated with the customer relationship during a specific period.

    • The central difference between CP and CLV is that CP measures the past
    and CLV looks forward

    • CLV is the present value of future cash flow attributed to customer


    relationship
    CUSTOMER LIFETIME VALUE

    • CONSTRUCTION: CLV model has only three parameters


    • 1)constant margin
    • 2)contant retention
    • 3)Discount rate
    • The model assumes that the first margin will be received at the
    end of the first period
    • Firm uses infinite horizon when it calculates the present values of
    future cash flows
    • CLV is the multiple of the margin (expected number of periods in
    the customer reltionship
    CUSTOMER LIFETIME VALUE

    • DATA SOURCES,COMPLICATION AND CAUTION


    • If firm wants to estimate sequence of retention rate ,a spreadsheet model
    might be more useful in calculating CLV

    • Customer lifetime value (CLV) with Initial margin


    • CLV with intital margin =Margin * 1+Discount rate (%)/1+Discount rate (%)-
    Retention rate (%).
    • The Infinite assumption
    • Over shorter period customer retention rates are less likely to be affected
    by major shifts in technology or competitive startegies and are more likely
    to be captured of historical retention rates
    PROSPECT LIFETIME VALUE VS CUSTOMER VALUE

    • Purpose : To account for the lifetime value of a newly acquired customer


    (CLV) When Making Prospecting Decision.

    A propect is someone whom the firm will spend money on in an attempt to


    acquire her or him as a customer
    The acquisition spending must be compared not just to the contribution from
    immediate sales it generate but also to the future cash flows expected from new
    customer.
    PROSPECT LIFETIME VALUE VS CUSTOMER
    VALUE

    • CONSTRUCTION:
    • The expected prospect lifetime value is the value expected from each
    prospect –cost of prospecting

    • PLV= Acquisition rate (%) * (Intital margin ($)+ CLVv ($))- Acquisition
    spending ($)
    • PLV is positive investment is to be made
    • PLV is negative then acquisition spending should not be made.
    PROSPECT LIFETIME VALUE VS CUSTOMER
    VALUE

    • DATA SOURCES,COMPLICATION AND CAUTION


    • The firm need to know the planned amount of acquisition spending ,the
    expected success rate ,the average margin the firm will receive from intial
    purchase of newly accqured customer

    • The decision to spend money on customer acquisition whenevr PLV is


    positive rest on an assumption that the customers acquired would nothave
    been acquired if the firm had not spend the money
    • Firm should search for economical way for acquiring customer
    Acquisition VS Retention Cost

    • The ratio of acquisition spending to the number of customer


    acquired is the avg acquisition cost
    • The ratio of retention spending directed towards a group of
    customers to the number of those customer successfully is called
    avg retention cost

    • To monitor firm effectiveness in categories of marketing spending


    Acquisition VS Retention Cost

    • PURPOSE : To determine the firm’s cost of acquisition and


    retention
    • CONSTRUCTION :
    • Average Acquisition cost =Acquisiton spending/No of customer acquired
    • Average Retenation cost = Retention spending/No of customer retained
    Acquisition VS Retention Cost

    • DATA SOURCES,COMPLICATION AND CAUTION


    • The avg retention cost calculated will be associated with the length of the
    period,if period is a year ,the avg retention cost will be a cost per year per
    customer retained
    • Customer will be retained if firm spends nothing in retention assume that if
    firm increase the retention budget by the avg retention cost that it will
    retain one more customer
    • To allocate all spending as either acuqistion or retention ,it is suggested it is
    perfectly acceptable to maintain a separate category that is neither of
    them.

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