Gary Cokins recently asked,
"Why don't companies measuring customer profitability?" It's a good question, and the answers in his comment section vary.
Jonathan Hornby also covers customer profitability in his recent
interview with Activity-Based Management (ABM) expert Peter Turney. In it, Peter explains how you can use
ABM to increase profits by up to 400 percent.
It's an astounding sum that's based on the theory of the Profit Cliff, which says:
- The top 30 percent of your customers are bringing in 500 percent of your profits
- The bottom 20 percent of your customers bring in losses that destroy 400 percent of those profits.
- The remaining 50 percent of your customers are breaking even.
I don't usually go for the hard sell here on the sascom voices blog, but the numbers on this one intrigued me. So I called Jonathan and asked him to tell me more about that potential for a 400 percent increase in net profits. He says 400 percent is a best case scenario, and a 30 percent improvement is a conservative estimate for even the smallest ABM implementations.
Okay, but how long will it take you to implement ABM? That's my next question, and I know it's the next question if you're calculating ROI in your head. Who cares if you're pulling in a 30 to 400 percent increase if the implementation takes years and the cost of implementing is outrageous. Because you're worried about THIS YEAR, right?
Jonathan's answer here is just as intriguing. Price points vary by country and depend on your data sources, IT environments and so on - but he tells me SAS offers a rapid prototype program for ABM that can be accomplished in 3 weeks for less than US$30,000.
You do the calculations. Depending on what your profit and loss statement says for last year, how much will a conservative 30 percent increase net for you? If it's more than $30,000 - you've got your ROI built in on this one.
