Revenue Management

CHAPTER 11

Are Your Customers Profitable?

Not all customers are good customers. Eliminating unprofitable or marginally profitable customers is a component of effective revenue management. Many sellers are not particularly discriminating; one author reports that 79 percent of business-to-business companies respond to all customers.¹ There may be a cost to responding to all customers because optimal revenue management seeks customers who will result in profitable sales. This chapter discusses how to assess which customers are valuable and which are not.

The 80/20 rule is well known: In general, 80 percent of one’s business will come from 20 percent of customers. This rule does not imply that one should pay attention only to big customers, many ...