Jun 10, 2024

Essential Metrics for Unlocking Customer-Level Profitability

Samuel Akinwunmi

In today's competitive tech landscape, understanding the profitability of each customer is crucial. It's not just about revenue; it's about knowing where every dollar comes from and how it contributes to the bottom line.

This is where Bilanc comes in - Automating profitability insights by integrating financials from the general ledger with product and engineering events data, leveraging Activity-Based Costing (ABC)

Why Customer-Level Metrics Matter

Customer-level profitability metrics provide the granulated data necessary to make informed business decisions. By understanding the financial contributions of individual customers, companies can optimise operations, tailor customer engagements, and ultimately drive higher profitability.

Key Metrics for Deeper Profitability Insights

Customer Acquisition Cost (CAC):
  • Calculation: CAC is calculated by summing all the costs spent on acquiring more customers (marketing expenses) and dividing that by the number of customers acquired in the period those costs were incurred.

  • Formula: CAC = Total Marketing Expenses / Number of New Customers

Customer Lifetime Value (CLV):
  • Calculation: CLV is the total value a customer is expected to contribute to your company over their entire relationship. It's calculated by taking the average purchase value, multiplying it by the number of transactions, and then multiplying the average customer lifespan.

  • Formula: CLV = Average Purchase Value X Average Purchase Frequency X Average Customer Lifespan

Profit Margin Per Customer:
  • Calculation: This is calculated by subtracting the total costs associated with serving a customer from the revenue earned from that customer, divided by the revenue, expressed as a percentage.

  • Formula: Profit Margin Per Customer = ((Revenue from Customer − Total Costs to Serve Customer) / Revenue from Customer) X 100%

  • Calculation: Cost-to-serve is calculated by totalling all operating expenses directly tied to servicing a specific customer. This includes direct costs such as support and service delivery, as well as allocated overheads.

  • Formula: Cost-to-Serve = Direct Service Costs + Allocated Overheads

Return on Marketing Investment (ROMI):
  • Calculation: ROMI is calculated by subtracting the marketing expenditure from the sales growth attributable to that marketing, then dividing by the marketing cost. This metric is crucial for evaluating the efficiency of marketing spend.

  • Formula: ROMI = ((Sales Growth − Marketing Costs) / Marketing Costs) × 100%

Customer Profitability Score (CPS):
  • Calculation: This composite metric can be developed by combining profitability indicators such as net profit per customer, frequency of purchase, and average order value. Each factor is assigned a weight based on its importance, and a final score is calculated.

Each of these metrics provides crucial insights into various aspects of customer profitability and helps in making informed business decisions. By monitoring these metrics, you can identify high-value customers, optimise marketing strategies, and allocate resources more effectively to maximise profitability.

How Bilanc Empowers Companies with Real-Time Insights

We seamlessly integrate with existing data systems, pulling data from the general ledger and directly from product/engineering events to give a comprehensive view of each customer's profitability. This enables:

  • Automated Insights: Real-time updates and automated report generation save time and reduce the risk of human error.

  • Proactive Decision Making: With up-to-date and accurate data at their fingertips, managers can make informed decisions quickly to improve profitability.

  • Strategic Customer Management: By understanding the profitability of different customer segments, companies can tailor their approach to maximise profitability.

Understanding customer-level profitability is more than just a financial metric; it's a strategic tool that can drive significant business success. With Bilanc, you can unlock these insights effortlessly, enabling smarter decisions that boost overall profitability.

Contact us today for a demo, and see how Bilanc can make your data work smarter for you.

Samuel Akinwunmi