Companies too often fail to pull full value from profitability measurement because they incorrectly perceive the measurement to be a valuation of the customer. In fact, understanding the underlying drivers is much more important than the resulting metric.

Knowing why a customer is profitable provides actionable insight that can guide segmentation, demand generation, channel investments, product developments and staffing decisions. Therefore, the clearer measure is how effective the company is at managing the relationship. Companies need to ask themselves:

• What business changes (like product bundles and service strategies) can be made to make customer relationships more profitable?
• Conversely, what customer actions or behaviors make those relationships less profitable?

Measuring profitability at a granular level opens a window to better management decisions and better customer relationships by providing insight into how, when and where the business may be failing to manage to profitability. A company's processes and strategies for acquiring, retaining and servicing its customers help determine the profitability of its customers. It affects the value of the company and, ultimately, the share price.