---
title: "KPI of the Week: Customer Profitability"
description: Learn how tracking customer profitability can help businesses identify top customers and make informed decisions on low-profitability relationships.
---

[PB NewsBlog ](https://blog.portebrown.com)

# [KPI of the Week: Customer Profitability](https://blog.portebrown.com/kpi-of-the-week-customer-profitability)

 Written by [Porte Brown](https://blog.portebrown.com/author/porte-brown) | Dec 17, 2024 1:30:00 PM

## **Importance of Customer Profitability**

**Customer Profitability** is a key performance indicator (KPI) that measures the profitability each customer or customer group brings to the company over a specified period. It is calculated by subtracting the costs associated with a customer or customer group from the revenues earned from them. While revenue data is often straightforward to obtain, accurately determining the associated costs can be more complex. It’s essential to use methods that fairly represent the total costs and appropriately allocate shared costs among all relevant customers.

## **Why Track Customer Profitability?**

Tracking customer profitability provides valuable insights into the financial contributions of individual customers or customer groups. This information helps businesses understand which customer relationships are beneficial and which may need reevaluation. Customers with low or no profitability can be assessed to determine whether maintaining these relationships is preferred. Sometimes, these customers might have future potential or provide strategic benefits, such as complementing other more profitable customers.

## **Assessing Low Profitability Customers**

Not all low profitability customers should be immediately cut off. Consider if they:

- **Have Future Potential**: Newer customers might grow to be highly profitable with time and development.
- **Provide Strategic Value**: Some customers may have relationships that benefit the company in ways beyond direct profitability, such as enhancing relationships with more profitable customers.

However, if certain low profitability customers consistently require more work and cause more issues, it may be beneficial to sever these relationships to improve overall profitability. This decision should be made carefully, considering all factors and following a proper process for terminating the relationship.

## **Identifying Top Customers**

Understanding customer profitability also helps identify your top customers. This knowledge enables your organization to focus on nurturing these high-value relationships. By analyzing what works well with these customers, you can replicate successful strategies with other customers to drive overall business growth.

[Contact Porte Brown](https://www.portebrown.com/contact-us) for more information on selecting the best KPIs for your organization.

[View full post](https://blog.portebrown.com/kpi-of-the-week-customer-profitability)

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