The Pareto Principle (or 80-20 rule) suggests that 80% of a company’s profits come from 20% of its clients. If this is the case, it opens up some very interesting questions; do you know which clients they are? Are you prioritising them appropriately? Do you have service tiers in place or are you over-servicing the remaining 80%?
The revenue generated by each client is usually clear so the biggest challenge in measuring client profitability is the assignment of costs. Rebase can help you to determine the optimum methodology to allocate distribution costs, product manufacturing costs, central overheads and cost of capital to the underlying client level. It is then possible to evaluate the relative profitability and ROE of each client (across the entire relationship) and benchmark this against their geographic region, risk rating and service tier. This will ensure that your most profitable clients receive the service levels they deserve and your underperforming clients can be targeted for up sell, cross sell or de-marketing.
