Profit and profitability on customer orders. Buyer profitability and competitive advantage

Satisfaction, or rather, "delighting" customers, has recently become neither more nor less a corporate mantra; the belief is that it is through satisfied customer needs that organizations can profit and therefore grow and develop.

While the main argument sounds compelling (a coin organization only makes money from customers buying products or services it offers), there is a caveat: not all customers are the same. Some customers make a significant contribution to the profit of the organization, while others actually bring in losses - for example, if the cost of providing a product or service is higher than the income generated from that activity.

The key question that this indicator helps to answer is - how much profit do our clients bring us?

In their zeal to “delight” customers, leaders of organizations expose themselves to the risk of loss. They offer their customers additional product and service capabilities without covering the cost of providing them.

This "inequality" in customer profitability has been known for several decades and has been confirmed by numerous studies. To cite one prime example, a customer analysis by one of the US insurance companies showed that 15-20% of customers generate 100% (or more) profits. Further analysis showed that the most profitable clients generate 130% annual profit, 55% of clients break even, and 5% of the least profitable clients generate losses equal to 30% annual profit (see “Example”).

Thus, the measurement of the indicator of profitability by the client allows the organization to not forget about its main goal: to make a profit from the sale of products and services.

How to take measurements

Information collection method

The collection of information is based on the analysis of marketing and accounting data, as well as the results of cost accounting by type of activity.

Formula

Customer profitability is the difference between the income received and the costs associated with maintaining the relationship with the client for a certain period. In other words, customer profitability is the net monetary contribution of an individual customer to an organization.

Since the client's profitability spans several time periods, this indicator is not essentially the only one. There are four main dimensions of customer value:

1. Historical customer value, which describes the value received from the customer over a period such as a quarter, a year, or since the relationship arose. The indicator can be measured as an average over previous periods, or weighted with more weight, with more weight being given to recent periods. Averaging leads to smoothing of the reported data for the client, giving consistency from even values;
2. current customer value, which looks at a shorter period of time, more often a month (to match reporting cycles). Present value can be volatile, as cyclical factors of the relationship with the client are often not reflected within one month. The advantage of the present value indicator is to highlight the effects of changes in the relationship with the client in comparison with previous periods. This metric is most useful for quantifying the benefits of different campaigns, new offers, and price changes;
3. the present value of the customer, which is a forward-looking metric that usually looks at the future streams of income and expenses of an existing business. This metric usually takes into account only the contractual length of use of the current product or service. Present value is used to rank customers according to their value and determine the remuneration ratio of sales personnel, and is also often used to model the impact of planned pricing decisions;
4. customer lifetime value is another future-oriented metric. It is distinguished from present value by a modeled component: lifetime value takes into account the estimated streams of income and expenses not only from existing relationships, but also from those expected in the future.

In addition, organizations often use cost analysis related to the implementation of specific activities, measuring the current total cost of providing a customer with a service or product. This approach requires obtaining only two parameters: the hourly rate of each category of resources performing the work (customer support), and the time spent by these resources on certain actions related to the product, service and customers. For example, if the hourly rate for a support worker is $ 70 per hour, and a single transaction for a customer takes 24 minutes (0.4 hours), then the cost of that transaction would be $ 28.The result can be easily scaled to companies with hundreds or thousands of products. and services and having thousands of clients.

The analysis of customer profitability depends on the metric used (see the Formula subsection). Remember that there is no single correct measurement of customer profitability, as these measurements are applied over different time periods.

The source of information is accounting and marketing data, as well as analysis of cost accounting by type of activity.

Measuring customer profitability is important, but expensive, especially when analyzing the profitability of a large number of customers. To obtain the total cost, many companies use an analysis of the costs associated with certain customer actions. Applying this approach requires training, resource allocation, management and payment of dedicated staff.

Target values

Companies must strive to turn unprofitable and breakeven customers into profitable ones.

Example. Below is an example of calculating the profitability of a bank client.

1. Let's determine the amount of costs per client. Using models based on cost accounting by type of activity, the bank has established the costs of various customer services. For example, informing about the status of an account by mail - $ 1, a call to the bank's contact center - $ 2, visiting a bank branch - $ 3 visit bank branches. However, to simplify the example, we will assume that, on average, a customer receives an account statement once a month, visits a bank branch once a month, and calls the bank's contact center once every two months. This means that the bank will spend on average $ 60 per customer per year. (12 × 1) + (12 × 3) + (6 × 2).
2. Let's determine the amount of profit per client. In our example, the bank knows that for every dollar invested, it can make a 3.5% return. If customer A has a deposit of $ 1,500 and customer B has a deposit of $ 15,000, then the profitability is calculated as follows.

Client A: Makes a profit of $ 52.5 (1500 x 0.035); however, if the bank's expenses are deducted, customer A is losing money. In our example, the profitability rating will be $ -7.5 (52.5 - 60).

Client B: Makes a profit of $ 525 (15,000 x 0.035) net of bank expenses, client B's profitability rating will be $ 465 (525 - 60).

Remarks

Organizations need to take a holistic approach to the information provided by customer profitability metrics. For example, customers are not currently profitable, but have a high lifetime value (and vice versa). Therefore, organizations should not terminate relationships with unprofitable clients without careful consideration.

As many experts note, today the first place is not only the sale of goods (services), but the creation of value for customers who, accordingly, do not just buy these goods, but acquire a set of benefits to meet their needs. One of the main ways to create such value is customer service, which in the face of increasing competition is becoming more and more costly for companies supplying goods and services. Therefore, offering the client Additional services, it is necessary to remember about compliance with the fundamental rule of their provision - ensuring the final positive economic effect from working with this client. In other words, we are talking about the return on sales to the client, which in its most general form can be represented as the difference between the income received from the client and the cost of servicing him.

British experts Martin Christopher and Helen Peck, in their book Marketing Logistics *, proposed The customer profitability matrix, which helps a supplier to define a profitable customer profile. ...

The matrix is ​​a square formed along two axes: Net sales value of customer account (vertical axis) and Cost of service or Cost of Service (horizontal axis). Each axis is conventionally divided into two parts, demonstrating the value of the level of each indicator: low and high. Each quadrant of the matrix reflects one of the combinations of client portfolio management strategies.

Top left quadrant Build refers to customers who are relatively cheap to service but have low net sales. Mostly these are new customers who need to be developed, including by changing the structure of their purchases in favor of more profitable positions, cross and additional sales. The main question that the supplying company must find an answer to: Can the volume of sales this client be increased without a proportional increase in the cost of its maintenance?

In the upper right quadrant Danger Zone there are clients with a small volume of sales, but high costs of their service. This group of clients, as a rule, requires a high level of service, but is not ready to pay the real price for it. The supplier company needs to carefully consider the feasibility of retaining such customers in its client portfolio. To do this, the authors recommend answering the following questions: Is there any medium to long term perspective of both increasing the volume of net sales and reducing the cost of serving these customers? Are there strategic reasons for retaining these customers? Does the company need them because of the volume, even if their contribution to profits is low?

Lower left quadrant Protect- this is the gold fund of any supplier company. It includes customers who provide a large volume of sales and are not particularly demanding in terms of service. The relationship strategy with this client group is to build and develop relationships where the client does not want to look for alternative suppliers.

To the lower right quadrant Cost engineer are customers who provide a large volume of sales with high service costs. The main strategy for working with them is to increase profitability by reducing the cost of their maintenance. The authors suggest the following as prompting questions: Are there any opportunities to increase profitability? Can deliveries be consolidated? Will shipping be more cost effective if more customers arrive in the area? Is there a cheaper way to get orders from customers, such as phone sales?

Thus, the matrix proposed by Christopher and Peck can be a useful tool for client portfolio management in order to ensure a high level of transparency in customer relations on the one hand and to obtain a given rate of return on the other.

* Christopher, M. Marketing logistics = Marketing logistics / Martin, Helen; Martin Christopher, Helen Pack; [lane. from English I.O. Kasimova]. - Moscow: Technologies, 2005 .-- 199 p. : tab., ill., schemes.

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How to identify low-margin customers. Analysis of sales by clients, managers and departments

I suggest that you conduct an analysis of sales in the context of clients, managers and departments in accordance with the main provisions of the Margin Analysis.

Let's divide all costs into fixed or indirect (independent of sales volume and not attributable to a given client) and variable or direct (attributable to a specific client).

If accounting at your company is carried out in the "1C" program, then you can easily generate a sales report in the context of clients and managers. If any of these functions are not configured, contact your system administrator, or modify the report manually in Excel.

If such a record is not kept at all, urgently start keeping it, because his data will allow you to more effectively organize the work of your company.

We will focus on the fact that we have data of the following type and are going to fill it with the indicators indicated in the header in order to calculate net profitability each client:

Typically, the first three columns are easy-to-get information.

As for direct costs, each company independently determines their composition.

We'll take the following:

• salaries and UST of managers;
• retro bonuses, marketing payments;
• deferment of payment.

Naturally, you can expand the list based on the specifics of your enterprise.

Salaries and UST of managers

C wages and ESN everything is quite simple. This data can be provided by the accounting department.

As for the method of distributing salary and UST among clients, you yourself decide by what indicator it is advisable to distribute them.

We will distribute this indicator by revenue in proportion to the share of sales of each client in the total sales of the manager for the period, since it is from the proceeds that the bonus is paid:

The proportion will be as follows:

sales manager = salary + UST manager

customer sales n = х (share of salary + UST per customer n)

If there are many clients, you can use absolute links in Excel when creating a report.

Retro bonuses, marketing payments and minimum balance

Data on retro bonuses and marketing costs in trade are usually collected on accounts 44 and 91.2 (check with the accounting department). Also check if all invoices for the period were issued and posted in 1C.

If so, feel free to use this data in your report.

If some data is not available or they have not been posted, you can calculate the planned indicator based on the rates of retro bonuses provided for by the contract.

This type of cost includes the so-called irreducible balance of debt. For example, your agreement states that you lend to a client in the form of an irreducible balance of his debt in the amount of 1 million rubles.

In this case, the amount of lost profit will be calculated based on the bank interest rate, since you could put this money in a bank and get interest on it:

Lost profit = Minimum balance * bank interest / 365 * Number of days in the period

Previous shopping experiences, advice from friends and coworkers, information from active market actors and competitors, and promises play an important role in the process of shaping customer expectations. If the information provided by the supplier companies leads to high expectations, it is possible that the buyer attracted by the advertisement will be disappointed. If the company sets expectations too low, it will fail to attract enough buyers (despite the fact that the actual quality of the product will exceed the expectations of consumers who still decide to make a purchase). Today, some of the most successful companies manage to raise the level of customer expectations and at the same time ensure the quality of the goods corresponding to them. Airline Jetblue airways, founded in New York in 1999, has significantly raised consumer expectations for so-called low-cost carriers. Passengers were offered completely new "Airbuses" with comfortable leather seats, satellite TV, free wireless internet and a customer satisfaction policy. After some time, other low-cost airlines began to offer some of these innovations.
However, the desire of a customer-centric company to achieve high customer satisfaction does not mean that this is the main goal for management. Customer satisfaction rises when a company lowers product prices or increases service levels, all other things being equal, lower profits. The company may be able to increase profitability in other ways, in addition to increasing customer satisfaction (modernization of the production process, additional investment in research and development). In addition, the company deals with a range of stakeholder groups: employees, dealers, suppliers and shareholders. Changing the direction of the flow of resources in favor of buyers may cause discontent among “deprived” groups. The company's philosophy should be to achieve, within the available resources, a high level of customer satisfaction and compliance with the requirements of other stakeholder groups.

Satisfaction score

Many companies conduct a systematic assessment of customer satisfaction and the factors that influence it, because customer satisfaction is the foundation of customer retention. A satisfied customer usually retains loyalty longer, buys new and higher-end products from the company, speaks well of both the company and its products, pays less attention to competing brands, is less price sensitive, offers new product ideas to the company or services, and, moreover, it is cheaper to maintain, since operations with it are routine. There is, however, no direct link between customer satisfaction and customer loyalty.
Suppose satisfaction is rated on a scale of 1 to 5. With a very low level of satisfaction (1), buyers will most likely refuse the company and will certainly not recommend it to their acquaintances. At an intermediate level of satisfaction (2–4), buyers will be highly satisfied with the company, but at the same time tend to switch to more attractive competitive offers. With the highest level of satisfaction (5), the chances of a repeat purchase and good reviews of the company are high. A high degree of satisfaction or admiration for a company creates not only a rational preference, but also an emotional connection with the company or its brand name. According to the company Xerox, “Fully satisfied” customers are six times more likely to repeat purchases over the next 18 months than “Highly satisfied” customers.
When customers rate customer satisfaction with one element of a company's business (say, delivery), management should be aware that people's perceptions of good delivery can vary widely. Customer satisfaction can be related to the speed of delivery, its timeliness, the completeness of the ordering documentation, etc. In addition, it should be understood that two different customers can report equally high satisfaction for different reasons. Some are easy to satisfy, and they are satisfied in most cases, others are difficult to please, but at the time of assessment it was just successful.

Quality of goods and services

Maximizing Lifetime Returns to Buyers

Ultimately, marketing is the art of attracting and retaining profitable customers. James Patten from American Express claims that these in his company include customers who spend on purchases in retail 16 times, restaurants 13 times, air travel 12 times, and hotel stays 5 times more than the average American. And yet every company has customers whose service is costly. The well-known Pareto rule states that 20% of buyers generate 80% of a company's profits. William Sherden suggested the addition - 20/80/30. He believes that "the top 20% customers generate 80% of the company's profits, half of which is lost on serving the bottom 30%." Takeaway: A company can increase profits by abandoning the most unprofitable buyers. Moreover, the most profitable buyers of a company are not always its largest clients, who demand maximum discounts and a high level of service. In contrast, ordinary buyers pay for goods according to full cost and are content with a minimum level of service; however, transactions with them involve high costs. “Average” customers are well served, they buy goods at almost full price, and very often the companies are the most profitable. This is why many firms are now looking specifically at the "middle class" of buyers. For example, leading express mailing companies find they cannot afford to ignore the needs of small and medium-sized shippers. Programs aimed at small clients include placing mailboxes in convenient locations. This allows postal companies to offer significant discounts on letters and parcels that are collected at the shipper's office. In addition to developing its network, the company UPS, for example, conducts seminars for exporters on the optimization of international transport.

Buyer profitability and competitive advantage

What is a profitable buyer? Profitable buyer - it is an individual, household or company that generates income for a long time, which is sufficiently higher than the costs of the company for their attraction and maintenance. Please note that this is about income and costs over the course of life cycle the buyer, and not about the profit from a particular transaction.
Many companies evaluate customer profitability, but most are unable to determine the individual profitability of their customers. For example, banks claim that customers use different banking services, which means that transactions are recorded in different accounting journals. Those banks that did manage to calculate individual profitability were horrified by the number of disadvantaged clients. Some banks reported that up to 45% of their private depositors were unprofitable. Here the company has only two options: to raise tariffs or cut service maintenance.
A useful example of analyzing the profitability of buyers is shown in Fig. 4.2. The columns show the customers, the rows show the products. Each cell contains a symbol that indicates the profitability of selling a given product to a given customer. Buyer 1 is very profitable; he purchases three profitable goods ( R 1, R 2 and R 4). Buyer 2's profitability is patchy; he buys one profitable item and one unprofitable item. Buyer 3 is unprofitable because he buys one profitable and two unprofitable goods.

Rice. 4.2. Profit analysis "Consumer / Product".

What to do with Buyers 2 and 3? The company has two options: 1) raise the price of unprofitable goods or abandon their production, or 2) try to sell lucrative goods to these buyers. If unprofitable buyers refuse to buy, they are of no interest to the company, which will only benefit if they leave for competitors.
For analysis of buyer's profitability(Ams) the method of accounting costing by type of activity is best suited. The company estimates all revenues from the buyer and deducts costs. The latter include not only the costs of production and distribution of products and services, but also all other resources of the company spent on servicing a given customer. If you follow this procedure for all buyers, you can classify them according to profit levels: platinum (most profitable), gold (profitable), bronze (low profit but desirable), and wooden (unprofitable and unwanted).
The company's goal is to convert “bronze” buyers to the category of “gold”, and “gold” - to the category of “platinum”. Wooden buyers should either be discarded or their profitability increased. To do this, as we have already said, it is necessary to increase prices or reduce maintenance costs.
Companies must create high value not only in absolute terms, but also in comparison with competitors, and at a fairly low cost. The ability of a company to act in one or more directions where competitors do not want or do not have the ability to match the level of value and costs it creates is called competitive advantage... M. Porter called on companies to create sustainable competitive advantage. In general, if a company wants to operate long and profitably, it must constantly invent new advantages. Any advantage for the company at the same time must be advantage for buyers and perceived by them as such. For example, if a company delivers faster than its competitors, but speed is not critical to buyers, this will not be an advantage for them.

Estimating Buyer's Lifetime Profitability

Purchasing capital of the company

Developing customer relationships

In addition to cooperation with partners - partnership management- many companies are focused on strengthening relationships with their customers, that is, on customer relationship management... It is the process of using detailed information about each specific customer and managing all the "touch points" with customers. The ultimate goal is to maximize customer loyalty. The point of contact any contact of the buyer with a brand or product is called, be it personal use, contact in the media mass media or simple observation. For example, for a hotel, the points of contact may be room booking, check-in and check-out, participation in programs regular customers, room service, business services, visit gym, use of laundry services, restaurants and bars. In hotels Four seasons For example, they rely on personal contacts: service personnel always refer to guests by name, employees are endowed with great powers and understand the needs of sophisticated business guests of the hotel; Besides, in Four seasons there is at least one of the best "amenities" in the region, such as the best restaurant or the spa pool.
Customer relationship management enables the company to provide customers with high-quality, real-time customer service. This is achieved through the effective use of individual customer information. Companies can customize their offerings, services, programs, messages and the media used based on the data of each beneficial customer. CRM is important because aggregate customer profitability is one of the main components of a company's profitability. One of the first CRM methods was applied by the company Harrah's Entertainment.
Some of the foundations of customer relationship marketing were laid down by D. Peppers and M. Rogers in their One-to-One book series. The authors name the following four principles of "personal marketing", they are also the four principles of CRM:

The break-even point is equal to the fixed cost divided by the marginal profit rate (MARR). Accordingly, the higher the NPP, the less goods need to be sold in order to reach self-sufficiency. Conversely, the more money is spent on fixed costs, the higher the revenue indicators should be. The influence of the NPP indicator on the break-even point increases with an increase in its value. Thus, with an NPP of 80%, an increase in sales volumes, as well as their decline, will affect the break-even point more and faster than with a 30% NPP.

It is important to know that when calculating the break-even point, taxes are not deducted from revenue. This is due to the complexity and differences in taxation systems for different businesses. To manage profit, it is useful to calculate the profitability of a particular direction, product, service, or even a specific order from a specific client... Profitability is the proportion of revenue received in excess of what is needed to reach self-sufficiency.

Calculation of the profitability of an individual product or service

In many businesses, the calculation of profit (or loss) before tax for individual goods or services is based on assumptions. The reason for them is that in diversified companies the same employees are involved in the creation of several types of goods and services at once. Accountants independently have to distribute the costs of paying for the work of such people across several products. In this case, it is almost never possible to achieve absolute accuracy. Therefore, the finance function usually does this approximately, based on their experience and assumptions. Of course, the calculation can be made with an accuracy of a penny, if the company has installed automated system time tracking, where each employee notes how many hours he spent on a particular project. But there are not so many enterprises that have the opportunity to introduce such a high-tech product.

Approximate calculation fixed costs in terms of a specific type of product may be incorrect. As a result, an enterprise may stop producing a product or close an entire direction. But the costs that the financial service used to allocate to him will not disappear anywhere and will have a bad effect on overall financial performance.

Profitability is the proportion of revenue received in excess of what is needed to reach self-sufficiency.

Calculation of the profitability of work for individual clients

It is known that according to the Pareto law, only 20% of customers bring 80% of the revenue. Of course, the ratio can change, but the essence remains - customers are different. And it may be worthwhile to spend more time on some of them, using additional staff. When a company has few customers, often one or two of them bring in up to 50% of total sales. As the number of customers grows, this share usually falls and can be, for example, 5%. But all the same it is worth considering such customers as key ones. After all, it is enough to find only 20 such clients, and they will amount to the same level of sales as a hundred or two small ones, with a share of 1% or less. But it should be borne in mind that, as a rule, the requests of large clients and their service requirements are higher than those of small ones. In addition, they often get the best conditions, prices, discounts for themselves. And for business, this means costs.

Economics gurus recommend separately calculating the marginal profit margin for customers whose share in total sales is 5% or more. At the same time, it is imperative to take into account all the overhead costs associated with such a client, from birthday gifts and meetings at lunch (expenses not only for food, but also for the manager's salary) to printing and preparing an additional package of documents and expenses for them. delivery. Having correctly identified all the indicators, you can easily find out the break-even point of the enterprise and adjust the development strategy taking into account the resulting calculations.