As I descr ib e d in t rend No. 1, there’s an expansion
from calculat ing pro duc t profitabilit y to calculat ing chan-ne l and customer profitabilit y using ABC pr inciples. T his
results in r anking customers from most profitable to least
profitable. S ome of the reasons that different iate hig hly
profitable from unprofitable customers can jump off a
rep or t’s pages—for example, excessive ly fre quent orders
r ather than bund le d. T he “w hat do thing s cost?” is ampli-fie d w ith the “w hy do thing s cost?” But the “w hy” ques-t ion that different iates hig hly profitable customers
from unprofitable ones isn’t always
answere d easily. With analy t ics’ re cur-sive par t it ioning and de cision t re es
me tho d, a computer can te l l you
w hy. Customer profit le ve l is a
dep endent v ar iable and is a
result of many fa c tors. In
the customer master file
are dozens of indep endent
v ar iables (such as numb er
of sales orders, t y p es of
orders, the lo cat ion of the
customer, and sp e cial ser-v ices the customer may
demand) that can b e compare d
and inter pre te d as the ke y differ-ent iators of profit le ve ls. From that
infor mat ion, companies can take profit-
As I descr ib e d in t rend No. 1, there’s an expansion
from calculat ing pro duc t profitabilit y to calculat ing chan-ne l and customer profitabilit y using ABC pr inciples. T his
results in r anking customers from most profitable to least
profitable. S ome of the reasons that different iate hig hly
profitable from unprofitable customers can jump off a
rep or t’s pages—for example, excessive ly fre quent orders
r ather than bund le d. T he “w hat do thing s cost?” is ampli-fie d w ith the “w hy do thing s cost?” But the “w hy” ques-t ion that different iates hig hly profitable customers
from unprofitable ones isn’t always
answere d easily. With analy t ics’ re cur-sive par t it ioning and de cision t re es
me tho d, a computer can te l l you
w hy. Customer profit le ve l is a
dep endent v ar iable and is a
result of many fa c tors. In
the customer master file
are dozens of indep endent
v ar iables (such as numb er
of sales orders, t y p es of
orders, the lo cat ion of the
customer, and sp e cial ser-v ices the customer may
demand) that can b e compare d
and inter pre te d as the ke y differ-ent iators of profit le ve ls. From that
infor mat ion, companies can take profit-
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