Customer Profitability
SkiBlu, Ltd., divides its customers into Gold customers and Silver customers. The company has one full time customer representative per 1,000 Gold customers and one full time customer representative per 10,000 Silver customers. Customer representatives receive salaries plus bonuses of 10 percent of customer gross margin. SkiBlu spends 90 percent of its promotion costs on Gold customers to encourage their loyalty.
|
Customer Costs |
Total |
Gold |
Silver |
|
Number of customers |
100,000 |
30,000 |
70,000 |
|
Average customer representative salary |
|
$35,000 |
$35,000 |
|
Promotion costs |
$4,000,000 |
|
|
|
Average gross margin per customer |
|
$ 220 |
$ 70 |
Required
a. What is the excess of gross margin over customer costs for each category of customer?
b. Write a short memo that evaluates customer profitability.