Customer Profitability Analysis
"Assess the profitability of your product lines. Your next job is to determine which of your products or services are making money (or not), and why...Activity-Based Costing will give you a more accurate picture than you or your predecessor may have had in the past."
The new leader's guide to diagnosing the business - Harvard Business Review February 2008 by Mark Gottfredson, Steve Schaubert, and Hernan Saenz.
"The top 20% of customers typically account for 120% of profit. Winning with the top 20% will kill your competitors. Not dealing with the bottom 20% will kill you."
Killer Customers - Larry Selden and Geoffrey Colvin.
Profitability Analysis, in particular Customer Profitability, is important in identifying where a company is really making money or indeed, where it could be losing money. It helps to focus efforts on improving profitability from certain customer segments while ensuring non-profitable customers and/or segments are exposed to management.
With ACE on-Demand you can create very detailed cost models. Generally we would suggest using high level activities in a profitability model but use fine detail for products/services or customers. ACE on-Demand allows multiple value items to be flowed through a model. In the case of profitability models it is possible to include both expense and revenue in the same model. This means that the final products of your model – customers, products or services – can be defined in terms of both full cost and revenue. This allows profitability analysis to be conducted within an ACE on-Demand model, greatly simplifying analysis.