"Without Knowledge the People Fail"
Over three thousand years ago an ancient writer penned the proverb "Without a vision or knowledge the people fail" and so it is today that knowledge of a company’s profitability is the ultimate determinant of its success or failure.
As crucial as this measure is, however, it remains a mystery to many management teams.
While most have a view of their profits at the corporate level and then aggregated by product group, line of business, geographic location, or customer segment, they still lack visibility to individual customer profitability.
Customers are at the centre of every business and ensuring that each customer is as profitable as possible should be a priority.
Without this view and a useful knowledge of the drivers most affecting profitability, business executives must make crucial business decisions with a limited understanding of their expected financial impact.
Chief executives making strategic decisions about which products, sales channels, or existing customers to grow or divest need to know in advance how their choices will affect the bottom line.
This requires a detailed understanding of both current as well as future profitability. Unfortunately, senior management often receives conflicting customer value or profitability metrics from its marketing and finance teams. The disconnects in the marketing and finance data spring from shared challenges:
These challenges obstruct the CFO organization’s ability to provide detailed, useful financial analysis of customer profitability that ties to the financial statements and can be integrated into daily business operations. Isolated efforts to allocate detail costs back to specific customers are so time-consuming, ad-hoc, and error-prone that their results aren’t suitable for presentation to general management, let alone appropriate for use when making major business decisions.
Attempts to partner with the IT organization and build customized profitability models often produce inflexible programs that require frequent, costly updates. While more accurate than spreadsheets, they are not at the level needed to yield meaningful analysis for customer focused decisions on segmentation, pricing, channel optimization, product bundles, etc.
In today’s dynamic, challenging business environment, these labour-intensive efforts are often abandoned in favour of more pressing matters. The result is a continued status quo in which management makes educated guesses about which customers are profitable.
Considering that at least 80% of most companies’ profits come from just 20% of their customers, and that studies indicate that a mere 1% price increase improves an account’s profitability by 8%, uncertainty about customer profitability places management at a significant strategic disadvantage.
Over three thousand years ago an ancient writer penned the proverb "Without a vision or knowledge the people fail" and so it is today that knowledge of a company’s profitability is the ultimate determinant of its success or failure.
As crucial as this measure is, however, it remains a mystery to many management teams.
While most have a view of their profits at the corporate level and then aggregated by product group, line of business, geographic location, or customer segment, they still lack visibility to individual customer profitability.
Customers are at the centre of every business and ensuring that each customer is as profitable as possible should be a priority.
Without this view and a useful knowledge of the drivers most affecting profitability, business executives must make crucial business decisions with a limited understanding of their expected financial impact.
Chief executives making strategic decisions about which products, sales channels, or existing customers to grow or divest need to know in advance how their choices will affect the bottom line.
This requires a detailed understanding of both current as well as future profitability. Unfortunately, senior management often receives conflicting customer value or profitability metrics from its marketing and finance teams. The disconnects in the marketing and finance data spring from shared challenges:
- no centralized framework to define and model customer profitability,
- limited detail behind the customer value metric, and
- lack of a unified view of profitability tying together all elements such as product, customer, service, channel, and pricing data.
These challenges obstruct the CFO organization’s ability to provide detailed, useful financial analysis of customer profitability that ties to the financial statements and can be integrated into daily business operations. Isolated efforts to allocate detail costs back to specific customers are so time-consuming, ad-hoc, and error-prone that their results aren’t suitable for presentation to general management, let alone appropriate for use when making major business decisions.
Attempts to partner with the IT organization and build customized profitability models often produce inflexible programs that require frequent, costly updates. While more accurate than spreadsheets, they are not at the level needed to yield meaningful analysis for customer focused decisions on segmentation, pricing, channel optimization, product bundles, etc.
In today’s dynamic, challenging business environment, these labour-intensive efforts are often abandoned in favour of more pressing matters. The result is a continued status quo in which management makes educated guesses about which customers are profitable.
Considering that at least 80% of most companies’ profits come from just 20% of their customers, and that studies indicate that a mere 1% price increase improves an account’s profitability by 8%, uncertainty about customer profitability places management at a significant strategic disadvantage.
Essentials of Customer Profitability Management
Based on their prior experiences helping customers address these challenges, we have identified four critical components of customer profitability solutions:
Based on their prior experiences helping customers address these challenges, we have identified four critical components of customer profitability solutions:
- A centralized, interactive repository which delivers a consistent view of profitability across the enterprise.
- A framework for the business users to build and maintain the profitability model. This component performs the allocations and calculations consistently across the enterprise but is able to provide multi-dimensional views including customer, product, service, and line of business.
- A robust OLAP business intelligence platform that helps the business analyze and report on the profitability metrics and the supporting detail. The platform leverages the data from the centralized repository to provide dashboards, reporting, and analytics to users across the enterprise.
- Activity-based cost capabilities that can be added as the customer profitability methodology evolves
A Unified, Multiple-Dimension View of Profitability
OLAP offers a solution to manage a centralized and consistent, 360-degree view of customer profitability and its many dimensions.
These powerful, scalable and easy to use tools provide a way of defining, calculating, and managing customer profitability through dashboards, reporting, and analytics – from the summary level down into the detail profitability data itself.
The granular detail also allows you to analyze the drivers, yielding insights for improvements to daily processes, practices, and strategic actions.
OLAP offers a solution to manage a centralized and consistent, 360-degree view of customer profitability and its many dimensions.
These powerful, scalable and easy to use tools provide a way of defining, calculating, and managing customer profitability through dashboards, reporting, and analytics – from the summary level down into the detail profitability data itself.
The granular detail also allows you to analyze the drivers, yielding insights for improvements to daily processes, practices, and strategic actions.
Customer Profitability Management in Action
Encourage Profitable Customer Behaviours
By exploiting the full range of profitability drivers captured in the data store OLAP solutions provide you with sophisticated tools for analysing metrics and supporting details.
Reporting and dashboards can rank customers based on profit contribution and reveal the underlying behaviours affecting profitability.
This insight allows management to focus on profitable activities, discourage costly ones, and predict future customer actions and preferences. Actionable intelligence is delivered to all relevant users in measures that can be used across the enterprise.
Such centralized metrics allow marketing, finance and other general management to coordinate strategic customer retention, maintenance, and acquisition decisions.
Making Informed Customer Management Decisions
By arming marketing management with a detailed view of the costs of customer behaviours, interactions and profitability, Jedox enables them to make better decisions based on accurate, detailed information. For example, customer campaigns can be prepared based on historical results versus revenue drivers which are not as accurate.
This will enable the business to offer the appropriate service or product at the right price, at the right time, to the right customer. In addition, the detailed cost information helps management streamline and focus the customer service and relationship management organizations as well as their actions.
Developing Objective, Centralized Profitability Measures
While the solutions’ profitability analytics provide information that can better inform your business decisions, you can be confident in the accuracy of the information as it can be reconciled back to company results posted to the general ledger. Centrally controlled, consistent, and detailed, they are easily managed and can evolve with changes in the customer and company environment.
Encourage Profitable Customer Behaviours
By exploiting the full range of profitability drivers captured in the data store OLAP solutions provide you with sophisticated tools for analysing metrics and supporting details.
Reporting and dashboards can rank customers based on profit contribution and reveal the underlying behaviours affecting profitability.
This insight allows management to focus on profitable activities, discourage costly ones, and predict future customer actions and preferences. Actionable intelligence is delivered to all relevant users in measures that can be used across the enterprise.
Such centralized metrics allow marketing, finance and other general management to coordinate strategic customer retention, maintenance, and acquisition decisions.
Making Informed Customer Management Decisions
By arming marketing management with a detailed view of the costs of customer behaviours, interactions and profitability, Jedox enables them to make better decisions based on accurate, detailed information. For example, customer campaigns can be prepared based on historical results versus revenue drivers which are not as accurate.
This will enable the business to offer the appropriate service or product at the right price, at the right time, to the right customer. In addition, the detailed cost information helps management streamline and focus the customer service and relationship management organizations as well as their actions.
Developing Objective, Centralized Profitability Measures
While the solutions’ profitability analytics provide information that can better inform your business decisions, you can be confident in the accuracy of the information as it can be reconciled back to company results posted to the general ledger. Centrally controlled, consistent, and detailed, they are easily managed and can evolve with changes in the customer and company environment.
Improve Your Profitability One Customer at a Time
With experience in providing actionable insights into customer profitability Procuity is well-positioned to help grow your company’s top and bottom lines.
With almost 20 years in OLAP Business Intelligence Procuity can help you with your strategies, translate these strategies into plans, implement execution monitors and provide insights to help improve your financial and operational performance.
With experience in providing actionable insights into customer profitability Procuity is well-positioned to help grow your company’s top and bottom lines.
With almost 20 years in OLAP Business Intelligence Procuity can help you with your strategies, translate these strategies into plans, implement execution monitors and provide insights to help improve your financial and operational performance.
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