Customer Focus Means Knowing Customer Profitability

Activity-based costing can provide insight into, and awareness of, customer profitability. Vogel Management works with clients to ensure they focus resources on the most profitable customers. We work with clients to identify and analyze costs associated with customer–focused activities.

1. Customer Acquisition. How much does it cost a company to acquire a new customer? These costs include business development, advertising and promotion, and other profile raising activities to build customer awareness of the firm’s product and service offerings.
2. Customer Service. These costs can be estimated as the firm’s “cost of goods sold” as well as the direct costs of delivering the product or service. Some firms include the costs of technical support and product maintenance activities in these costs.
3. Customer Maintenance. After a customer is acquired, the firm should make every effort to establish and maintain a bond with that customer. These activities may include sales calls, industry shows, dealer councils, product support material as well as normal marketing activity. A strong customer bond will make it more difficult for a customer to shift business to a competitor.
4. Customer Loss. Firms often ignore the costs associated with losing a customer. These costs may range from modifying internal systems to reflect changes in the customer base to the cost of acquiring a replacement customer. Our experience indicates firms under estimate the importance of existing customers and ignore the fact that customer acquisition costs are estimated to be between 10 and 20 times higher than customer retention costs.

Customer profitability is a critical element of global success. Vogel Management works with clients to develop and implement customer profitability frameworks.