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What is Customer Profitability?

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Customer profitability is the gross profit associated with a customer or group of customers.


Customer profitability is essentially a contribution margin or gross profit broken down by customer. It is calculated using variable costs.
customer profit = revenue - variable costs
In some cases, models may allocate fixed costs into the calculation of customer profit. Attributing fixed costs to customers can be complex and may require a variety of company specific interpretations.
customer profit = revenue - variable costs - fixed costs attributable to customer


Customer profitability is often used to form marketing, sales and customer service strategies and tactical actions. Awareness regarding which accounts are critical to the bottom line can aid in customer retention efforts. Customers with low or negative profitability may be an opportunity for upselling. In many cases, customers with low profitability can be improved to have a reasonable customer lifetime value.


A data center in a strategic location for colocation services is running out of power and space. They need to ask some customers to move to a secondary location nearby in order to preserve the stability of services to manage continued growth. The move impacts customers with downtime and the secondary location is in a slightly less ideal location. In other words, the migration may result in account cancellations and issues with customer satisfaction. The firm performs a customer profitability analysis and asks their least profitable accounts if they are willing to move.
Overview: Customer Profitability
Marketing Metrics
Sales Metrics
Customer Service Metrics
The gross profit associated with a customer or group of customers.
Also Known As
Customer Profitability Analysis
Related Concepts


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Account Management
Ambiguity Effect
Bargaining Power
Bias For Action
Bliss Point
Business Relationships
Buyer Persona
Call To Action
Choice Architecture
Churn Rate
Closing Techniques
Complex Sales
Concept Selling
Conversion Rate
Curiosity Drive
Customer Lifetime Value
Customer Motivation
Customer Needs Analysis
Customer Persona
Customer Profitability
Customer Relationships
Customer Retention
Customer Satisfaction
Customer Service
Deal Desk
Decoy Effect
Default Effect
Fear Of Missing Out
Figure Of Merit
Final Offer
Hard Selling
Ideal Customer Profile
Lead Generation
Lead Qualification
Low Ball
Marketing Channels
Message Framing
Needs Identification
Negotiation Process
Nudge Theory
Objection Handling
Personal Selling
Pricing Strategy
Product Differentiation
Product Knowledge
Promotion Strategy
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Scarcity Marketing
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Solution Selling
Trade Fairs
Willingness To Pay
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