Customer profitability, industry by industry
Revenue hides the truth: two customers of equal size can sit on opposite sides of the margin line. Customer profitability reveals which create value and which destroy it. Here is how it lands in each industry we work in.
Customer profitability is net profit per customer after the cost to serve, not just gross margin. The analysis is universal; the unit differs, a customer in distribution and financial services, an account in IT, a service line or patient group in healthcare.
THE WHALE CURVE, IN ANY SECTOR
Illustrative. The same method, different drivers by sector.
The 20 percent of customers who create most of the profit, and the tail that quietly gives it back, are invisible until you look.
Common questions
- What is customer profitability analysis?
- It is the measurement of net profit per customer after all costs, product cost plus the cost to serve. It distinguishes the customers who create value from those who destroy it, which gross margin alone cannot do.
- How does it differ by industry?
- The method is the same; the cost object differs. It is a customer in distribution and financial services, an account in IT services, and a service line or patient group in healthcare. In each, the cost to serve is what turns revenue into true profit.
Sources
Canonical works behind this method. Each opens in a new tab.
- PaperMeasuring and Managing Customer ProfitabilityKaplan, R. S. & Narayanan, V. G. (2001). Journal of Cost Management 15(5).Canonical source of the whale curve and cumulative customer-profitability analysis.
- PaperTime-Driven Activity-Based CostingKaplan, R. S. & Anderson, S. R. (2004). Harvard Business Review 82(11).The founding article defining TDABC and its two-parameter model.
- PaperThe Cost-to-Serve MethodBraithwaite, A. & Samakh, E. (1998). International Journal of Logistics Management 9(1).Seminal paper that formalized the cost-to-serve method.
Find your unprofitable customers.
The Profit Check shows where margin is hiding, in 12 to 15 minutes.
- Duration
- 12 to 15 minutes
- You receive
- Score, 7 dimensions, sector benchmark
- Price
- Free, no email needed
Proof
A distributor in New Zealand. €1.335M of cost-to-serve made visible, then halved, and 830 loss-making customers brought down to 295.
Read the case study →Who you would be talking to
Miguel Guimarães, Founding Partner
Cost and profitability practitioner for 25+ years. Presented the Damco cost-to-serve case at Managing for Profit (Amsterdam RAI, December 2009), on the same programme as Robert S. Kaplan.
Call +351 910 313 731
