Glossary · Sales and customers

Customer profitability: how to calculate it properly

Also known as: Account profitability

Customer profitability is the difference between what you bill an account and what it costs you to serve it.

Why hardly anyone calculates it

Because the two figures live in different places. What you billed is in the ERP. What it costs to serve is in technicians’ hours, materials and travel, which are usually in another system or not recorded at all. Without joining them, profitability is a guess.

The five costs to add up

  1. Logged hours at their hourly cost, including overhead and not just salary.
  2. Materials and spare parts used.
  3. Travel and expenses.
  4. Non-billable admin and support hours.
  5. The cost of reopened tickets and second visits.

What often shows up the first time

It is common to find that a large customer costs more than it bills, sometimes for years. The renegotiation conversation is uncomfortable, but with the report in front of you it is a conversation about data, not impressions.

The usual mistake

Calculating it only for the customers who “feel off.” It has to be done across the whole customer base: the surprises are where nobody is looking.

Keep reading

Related terms

Support and service

Hour bank

Prepaid hours · block of hours

An hour bank is a block of service hours bought in advance that is drawn down as work is done.

Sales and customers

Churn

Customer churn · churn rate

Churn is the loss of existing customers, usually because they do not renew their contract.

Sales and customers

Sales pipeline

Pipeline

The sales pipeline is the set of open sales opportunities, organized by the stage each one is in.

See all 53 glossary terms

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