Customer Profit

9 Pages Posted: 30 May 2017

See all articles by Phillip E. Pfeifer

Phillip E. Pfeifer

University of Virginia - Darden School of Business

Paul Farris

University of Virginia - Darden School of Business

Abstract

This technical note introduces important metrics firms use to monitor customer relationships. The note begins by discussing how to count the firms' customers and keep track of their activity using the concepts of recency and retention. An important summary of customer activity is the profit the firm receives from each customer. Just as some brands are more profitable than others, so too are some customer relationships more profitable than others. Customer profit is the metric that summarizes the past financial performance of a customer relationship. A companion note, “Customer Lifetime Value” (UVA-M-0800), addresses the forward-looking metric that attempts to put a dollar value on a customer relationship.This technical note is an excerpt of the more comprehensive treatment of customer metrics found in “Customer Profitability” (UVA-M-0718).

Excerpt

UVA-M-0799

Apr. 20, 2011

Customer Profit

This note introduces important metrics firms use to monitor customer relationships. The note begins by discussing how to count the firms' customers and keep track of their activity using the concepts of recency and retention. An important summary of customer activity is the profit the firm receives from each customer. Just as some brands are more profitable than others, so too are some customer relationships more profitable than others. Customer profit is the metric that summarizes the past financial performance of a customer relationship. A companion note, “Customer Lifetime Value” (UVA-M-0800), addresses the forward-looking metric that attempts to put a dollar value on a customer relationship.

These three metrics are used to count customers and track customer activity irrespective of the number of transactions (or dollar value of those transactions) made by each customer.

. . .

Keywords: customer profit, customer profitability, recency, retention

Suggested Citation

Pfeifer, Phillip E. and Farris, Paul, Customer Profit. Darden Case No. UVA-M-0799. Available at SSRN: https://ssrn.com/abstract=2974684

Phillip E. Pfeifer (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4803 (Phone)

HOME PAGE: http://www.darden.virginia.edu/faculty/Pfeifer.htm

Paul Farris

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-0524 (Phone)

HOME PAGE: http://www.darden.virginia.edu/faculty/farris.htm

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