Do You Know the Cost of Your Customers?


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I think it would be safe to say that in traditional Lean Practices, the notion of Product/Goods Dominant Logic still prevails. The opposite, of course, is Service Dominant Logic. From that tradition, you will see many Lean companies viewing their product as a value stream and as a result, their markets in very much the same way, emphasizing product and the flow of that product as being the priority and the measurement of success.

Whether I believe that or not, or even if you are extremely successful with this line of thinking is somewhat irrelevant to what I am going to say. All I really want to do is to highlight the fact that we are geared toward Product-Dominant thinking and, as a result, our existing cost structure follows a similar path. As Service-Dominant Logic becomes more prevalent, it seems our variables continue to increase.

I am not an accountant.

CalculatorOne of the items that I seldom see in most accounting structures is a way to determine quickly cost and profitability by customer segment. When I asked, I get numerous prices broken in a zillion ways and even per customer or per customer group that is typically grouped by some demographic or product. It may be even by sales revenue or frequency of purchase.

That is not what I am asking for. What I would like to see is the true cost of a Key Account for example. The problem with getting that is that most if not all the overhead is allocated as it is for every other client. And we all know that is not necessarily the case. There is a significant amount of overhead for certain key accounts. On the other side of the spectrum, smaller accounts may also have costs assigned or even not assigned to them that “just ain’t so”.

Many sales and marketing measurements fail to deliver the results expected. When you ask your sales and marketing people to deliver a ROI on certain tactics, the actual metrics being used to measure them are often flawed to begin with.

The other day, I had a blog post that discussed a product life cycle, The Crystal Ball: Viewing Your Future Product or Service, and when we look at how many different variables are changing during the life cycle costing is a real issue just with the increase/decrease of services being offered and to which customer segment. More importantly, do you truly know which customers are profitable and which ones are not? Can you make strategic marketing decisions based on your existing information?

Lean Marketing eBooks (More Info): Excerpt from the Lean Marketing House

Republished with author's permission from original post.

Joseph Dager
Business901 is a firm specializing in bringing the continuous improvement process to the sales and marketing arena. He has authored the books the Lean Marketing House, Marketing with A3 and Marketing with PDCA. The Business901 Blog and Podcast includes many leading edge thinkers and has been featured numerous times for its contributions to the Bloomberg's Business Week Exchange.


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