Boost Profits And Lower Costs By Focusing On This One Thing

Anja Reschke

Cashier helping African American couple --- Image by © Hill Street Studios/Blend Images/CorbisMost of us are overwhelmed daily with the increasing barrage of information thrown at us: growing to-do lists, multitasking projects, and mounting pressure to hit strategic goals.

Wouldn’t it be great if you could focus on only one thing to make your company succeed? Well, it turns out that you can, according to a recent article by Ernst & Young (EY).

EY’s research suggests that companies worldwide can improve profitability and lower costs by focusing on just one thing: the customer.

They’re not simply talking about focusing on the customer to make a profit today; they’re recommending that you focus on building a lifetime customer relationship that will bring significant profitability to your company for years to come.

They call it “customer lifetime profitability,” and EY says it’s the key to long-term, sustained profitability.

What is customer lifetime profitability (CLP)?

CLP measures the underlying profit of an existing customer base and considers the future revenues and costs for the lifetime of the customer.

By taking a customer-centric view, organizations make decisions based on customer needs and deliver long-term profits through improving their customer experience and advocacy.

To achieve customer lifetime profitability success, businesses should:

  • Invest in what matters most to customers
  • Remove processes that frustrate customers and increase costs

The goal of customer lifetime profitability

With the CLP model, the goal is not to gain a multitude of customers, but to foster high-value, long-term customer relationships. This doesn’t mean just focusing on your current high-profit customers and forgetting about your existing low-profit customers. It means nurturing each relationship so that it can develop into a more profitable, long-term customer bond.

EY says this is what customers want, and it will lead to mutually beneficial, long-term customer relationships. With complex markets and a multitude of choices these days, customers seek brands that they can trust and rely on to make purchases from for many years. So if you want an expanding group of loyal repeat customers who become advocates for your company, EY says CLP should be your goal.

Companies that focus on CLP have better customer outcomes and improved profitability, along with many other advantages.

Benefits of the CLP approach

  1. Maximizes profit return on customer base
  2. Acquires and retains more profitable customers
  3. Increases the profitability of customers that are low or lost profit
  4. Improves market performance
  5. Improves productivity and profit performance
  6. Increases customer satisfaction
  7. Optimizes sales and revenue
  8. Improves customer and product development decisions and spend more effectively

How to achieve CLP success

In order to achieve customer lifetime profitability, EY says the objective may not be to sell a product or service in some cases, but to focus on one thing: providing a positive customer experience, which will become the basis of customer profitability for years to come.

This information was based on the EY article, “Customer Lifetime Profitability: How to grow and manage your best customers.” Ernst & Young Copyright © 2015.

For more information about data analytics and the changing customer experience, download the SAP eBook, Digital Disruption: How Digital Technology is Transforming Our World.

For an in-depth look at how the digital age is affecting business, download the SAP eBook, The Digital Economy: Reinventing the Business World.

Discover How the ‘Internet of Me’ is Changing All the Rules when it comes to customer engagement. 

Learn How Data Can Lead To More Profitable Customer Relationships.

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About Anja Reschke

Anja Reschke is the Senior Director of Strategic Ecosystem Marketing at SAP. She is responsible for the development of joint strategic marketing plans, programs, and activities, with global strategic services and technology partners.