Customer & Market Analysis

Profitability is one of the most significant measures to evaluate the success of any business. Understanding the profitability of significant customers or markets, helps decision makers identify strategic paths for profitable opportunities.

The Benefits

identify the right strategic path for your business
evaluate the success of trading with the right customers or in the most favourable markets, taking account of all business costs including overheads
maximise resources, performance and value

What is the difference between Customer and Market profitability analysis?

Customer profitability analysis measures the net profit earned by doing business with a particular customer or customers such as the top 10 customers
Market profitability analysis measures the net profit earned by undertaking business in a particular market such as wholesale, retail, private, public or a particular demographic such as transport. Trading in a market normally means more than one customer

What is a profitable customer or Market?

A profitable customer is a person, organisation, business or company that over time yields revenue that exceeds, by an acceptable amount, the cost of attracting, selling and servicing that customer.
A profitable market is a market for the business that over time yields revenue that exceeds, by an acceptable amount, the cost of attracting, selling and servicing the group of customers with which they trade within that market.

Cost Allocation

Direct costs are those costs incurred to generate revenue, such as the purchase or production cost of units sold or services delivered
Indirect costs or overheads are those costs that cannot be directly attributed to generating revenue, such as the cost of finance, marketing, communications and administration.

The challenge of any profitability analysis is to find a way of allocating the indirect costs to the significant customers or markets. To allocate indirect costs fairly, the key drivers for those costs need to be identified.
For exaple

Labour cost or time
Production cost or time
The number of transactions, such as purchase orders or sales orders
Time spent servicing the customers or markets

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