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Customer Margin Formula:
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Customer Margin is a financial metric that measures the profitability of serving a particular customer. It represents the percentage of revenue that remains as profit after accounting for the costs associated with that customer.
The calculator uses the Customer Margin formula:
Where:
Explanation: The formula calculates the profit margin percentage by subtracting costs from revenue and dividing by revenue, then multiplying by 100 to get a percentage.
Details: Calculating customer margin helps businesses identify their most profitable customers, make informed pricing decisions, optimize resource allocation, and improve overall profitability by focusing on high-margin customer relationships.
Tips: Enter customer revenue and customer cost in dollars. Both values must be valid (revenue > 0, cost ≥ 0 and ≤ revenue). The result will be displayed as a percentage.
Q1: What is a good customer margin percentage?
A: A good customer margin varies by industry, but generally margins above 15-20% are considered healthy, while margins below 5% may indicate profitability challenges.
Q2: How does customer margin differ from gross margin?
A: Customer margin focuses on the profitability of individual customers, while gross margin looks at the overall profitability of products or services across all customers.
Q3: What costs should be included in customer cost calculation?
A: Include all direct costs associated with serving the customer: product costs, service delivery costs, support costs, and any other customer-specific expenses.
Q4: How often should customer margin be calculated?
A: Customer margin should be calculated regularly (quarterly or annually) to track profitability trends and make timely business decisions.
Q5: Can customer margin be negative?
A: Yes, if the costs to serve a customer exceed the revenue generated, the customer margin will be negative, indicating a loss-making relationship.