The Business Book

Measuring customer profitability implies quantification of customers’ or groups of customers’ contribution to the company’s financial performance, regardless of whether a profit or net cash flow are used as financial outputs. The need for measuring customer profitability stems from the fact that each customer does not equally contribute to the profitability of the company. Customer profitability can be measured at the level of individual customers or groups of customers. Companies can calculate customers’ contribution to their current profitability or evaluate customers’ ability to generate profits in the future by means of projecting revenues and costs (cash flow) that will be caused by customers in the forthcoming years of cooperation. Bearing in mind that management accounting theory is predominantly focused on the development of new methods and techniques as well as to the improvement of already existing ones and being aware that there is a frequent absence of consideration of the extent to which these methods have been accepted in practice, this paper will attempt to identify the level of measuring customer profitability method’s acceptance in business practice, determine contingent factors that influence the companies’ need for the application of these methods and to acknowledge the difficulties that companies experience in the process of their implementation and application.