Customers profitability matrix

Companies can define themselves by the type of customer they seek to service. For this purpose, the customer profitability matrix provides four categories. It requires detailed cost analysis and allocation of indirect costs for all customer segments. This encompasses pre-sale costs (location, need for customisation, etc), production costs, distribution costs, and after-sale service costs. The actual prices charged to different customer segments are subsequently assessed, together with the volume consumed over time and its value. The matrix (Figure 2.4) has net price on the vertical axis, and cost on the horizontal, and is divided into four quadrants ... 

The cost of developing and producing certified reference materials, especially matrix materials, is high. Researchers should realize, however, that in most cases the true cost of a certified reference material is never fully charged to the customer. For example, the costs of the research required to demonstrate the feasibility of producing a certified reference material are usually not incorporated into the final cost. As a result, a commercial organization may never want to undertake this initial research, since profits would often not be realized. 

The size of each circle represents the value of that customer segment. Very large customers may be identified individually. The cross-lines represent average price and cost, while the diagonal line shows the break-even point at which price equals cost. Interrogation of the matrix enables development of strategies that maximise profitability. 

In this example, the supplier-buyer relationship is analyzed according to the different modules of the exemplary product Tec 1 applied in the Kraljic matrix for the private customer segment. The supplier-buyer relationship is a relevant measure to analyze the power distribution between buyer and supplier. In Fig. 5.9 one can see the different components of Tec 1 in the matrix. The noncritical items such as the screen and the keyboard indicate that here there is not a strong dependence on the supplier and a low risk for the profit impact as well as the supply risk. The screen and keyboard do not contribute to the differentiation process of the product and therefore do not have strategic importance. 

---