How do you integrate customer profitability and sustainability in your business model?

1 What is customer profitability?

Customer profitability is the net profit that a business earns from serving a specific customer or customer segment over a given period of time. It is calculated by subtracting the costs of acquiring and retaining a customer from the revenues generated by that customer. Customer profitability can vary widely across different customers, depending on their purchase behavior, loyalty, preferences, and needs. By analyzing customer profitability, you can identify your most and least profitable customers and allocate your resources accordingly.

2 What is sustainability?

Sustainability is the ability of a business to meet its current needs without compromising the ability of future generations to meet theirs. It involves balancing the economic, social, and environmental aspects of the business and its stakeholders. Sustainability can enhance a business's reputation, customer loyalty, innovation, efficiency, and risk management. By adopting sustainability practices, you can reduce your environmental impact, improve your social responsibility, and increase your long-term profitability.

3 How to measure customer profitability and sustainability?

In order to measure customer profitability and sustainability, management accounting methods must be used to capture the relevant costs and benefits of serving each customer. Activity-based costing (ABC) assigns costs to activities based on the resources they consume and then allocates them to customers based on the activities they trigger, helping you identify the drivers of customer profitability and the cost of serving different customer segments. Customer lifetime value (CLV) estimates the present value of the future cash flows that a customer will generate over their relationship with the business, allowing you to assess the long-term profitability and loyalty of each customer and the return on your marketing investments. Lastly, sustainability accounting measures and reports the economic, social, and environmental performance of the business and its impact on stakeholders, helping you evaluate the costs and benefits of your sustainability initiatives and communicate them to your customers and other stakeholders.

4 How to integrate customer profitability and sustainability in your business model?

Integrating customer profitability and sustainability into your business model requires aligning your value proposition, value delivery, and value capture with customer and stakeholder needs. To do this, you can segment customers based on their profitability and sustainability profiles and adjust offerings and pricing accordingly. Additionally, design products and services to reduce waste, emissions, and resource consumption while increasing value, quality, and customer satisfaction. Engage customers and stakeholders in your sustainability efforts, communicating your impact and value proposition clearly and transparently. Finally, monitor and improve customer profitability and sustainability performance using management accounting tools and feedback mechanisms.

5 How to gain a competitive advantage from customer profitability and sustainability?

Integrating customer profitability and sustainability into your business model can give you a competitive advantage. You can differentiate yourself from competitors by offering superior value and benefits to customers and stakeholders, as well as build long-term relationships with them. Additionally, this approach can help you attract new customers who are willing to pay a premium for sustainable products. Furthermore, it can reduce costs and risks by improving efficiency and resilience, as well as complying with regulations and standards. Finally, it can help you innovate and explore new markets, products, and partnerships that align with your sustainability goals.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?