7 Advantages of Analyzing Customer & Product Profitability in Retail

by Shibu Nath Send online flowers to India

Customer and product profitability analysis help identify which customers to retain and what products to pursue. It makes room for growth in a business. Customer profitability analysis evaluates the value of a particular customer and how much your company spends on them for retention, whereas product profitability is simply, assessing the chance of a product to shine in the market. Not every customer or product generates profit, and a business should know when to pursue them.

Customer and product profitability analysis help you ensure that the customer or product you are emptying your pockets on is worth every penny. The Pareto principle suggests that not more than 20% of your products generate more than 80% of your total sum, indicating that a careful product profitability analysis make all the difference. Of course, a business cannot possibly retain every customer, but a special treat for those who prove invaluable to the profit scale is worth the extra.

Customer and product profitability analysis make your job easier by sorting out the products and customers that you should pay more attention to. This does not imply negligence for every other product or customer; it can also be seen as a critique to make room for improvement. For example, you could add new features to your product. Also, you could try to motivate more and more of your customers to contribute to your profitability, maybe by multiplying endorsements.

Advantages of Customer & Product Profitability Analysis

While a clear cut idea sits in every business hero as to why customer and profitability analysis is essential, here are a few advantages to jog your brain:

1. It gives you an insight into profit-making products and customers.

The job of customer and product profitability analysis is to evaluate the cost of maintaining individual customers and products. If they are assessed to bring value to the company, you should go for it with your eyes open.

2. It contributes toward customer trust and loyalty.

If a customer is invested in what you offer, making them stick is the right choice. Customer and product profitability analysis help you identify the customers that hold a weight in your profitability and can thereafter be offered distinct rewards that add to their satisfaction and liking for your brand.

3. It encourages improvement.

Once the value of a customer or product is assessed, you are free to improvise. Alterations to the product or stopping pursuing an inactive customer could save you a lot of money in the long run. Not everything is worth going after, and not everything turns out perfect. A careful analysis of what goes for retail and what goes for refining is a must-know. Plus, spending on a neglecting customer will mostly stoop your profits lower. Know your audience.

4. Better pricing.

When you estimate the value of a product or customer service, you get an idea about where to cut down, thereby allowing for a better pricing plan. In addition, it makes you rethink and reevaluate the costs of certain products and services specific to the retention of an overestimated customer.

5. It evades wastage of time and resources.

Customer and product profitability analysis directly demotivate you to go after a product or customer if they hold lesser value than you would expect. This eliminates unnecessary wastage of time, resources, and work on products or customers that will prove unworthy.

6. It makes room for better, profitable elements.

Once you have developed or discarded all that could prove underwhelming to your company, you start making room for something better to come along. By not pursuing a lost cause, you are gearing yourself for something profitable. If you pursued a goner, you would have exhausted your time and resources for nothing, but now, you have saved them for a beautiful prospect customer or product. Now, you would have additional resources and time to put into marketing, customer service, and whatnot! So make it blow up the profitability chart.

7. It helps you make marketing decisions.

If the customer and product profitability analysis assesses one product as highly valuable and the other as underwhelming, you might want to consider the option of cross-selling or up-selling. Cross-selling is when you add a product of lesser value along with a profitable one whereas up-selling is when you increase the value of an existing product by adding new services and enhancements. Both of these marketing strategies have the potential to turn a loser product into a winner in retail.

Conclusively, customer and product profitability analysis helps you make better decisions in pursuing a product or a customer. Additionally, it increases the overall productivity of your business and reduces the scope of drainage. It is a function of ethereal significance.

SUMMARY

Customer profitability analysis estimates the value of a customer to your business. Similarly, product profitability analysis estimates the value of a product by your company. These analyses aim to determine if retaining a customer or developing a product would be in the favor of your business since less than 20% of products make up for more than 80% revenue of a business. It suggests what product or customer is worth emptying the pockets for. The advantages of customer and product profitability analysis include providing an insight into profitable products and customers, developing trust and loyalty in a valuable customer, improving on products or customer service as suggested by the analysis, adapting better pricing techniques for your products and customer service to rule out extras, evading the excess wastage of time and resources on overestimated products and customers, making room for better products and customers to come through, and deciding on the appropriate marketing strategies for your products. All in all, it helps you make better business decisions and invite more productivity and profitability in your organization.

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