Measuring group level customer profitability: A case study

Abstract

The motivation of the thesis is to study how customer profitability can be measured on group level, how different approaches treat various costs and to test the applicability on the case company. Research questions dwell on indirect cost allocation, customer resource consumption and comparison of the theoretical model to an existing method piloted in the case company. The purpose of the study is not to assess the implementation process of the models. The theoretical framework for the thesis is based around studies on activity-based costing as well as customer profitability analysis. Studies by Hellman (2003), Lukka & Granlund (2002) and Helgesen (2007) are major contributors to the theoretical framework along with others. The method of the thesis is done as an experimental case study but also some characteristics of a constructive research method can be found. Data used for the analysis was obtained from the case company’s ERP system. Some limitations for the analysis did exist in the data, but they were overcome and their effect on reliability of the results is discussed. The resource consumption between customers varies significantly which gives indirect customer cost allocation a significant role in defining the margins. Other key findings include that the existing method in the case company differed substantially from the theoretical model introduced in this study where defining the cost pool and allocation methods was the main reason for differences.