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    Customer Profitability Problem

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    Beaujolais Financial Group (BFG) segments its customers into premium members, who purchase extensive services, and standard members, who purchase minimal services. It offers premium members a 10 percent discount on the total package of services purchased but requires standard members to pay full price.

    BFG devotes one full-time customer representative per 100 premium members and one per 1,000 standard members. Customer representatives receive salaries and a bonus of 1 percent of customer revenue (after 10 percent discount, if applicable). BFG estimates that it spends twice as much on total promotions for premium members to encourage their loyalty.

    General and administrative cost, which is not traced to customers,
    is $2,400,000 per year.

    Customer Service Resources Total Premium Standard
    Number of customers.................................................................. 125,000 45,000 80,000
    Average sales salary/year ...................................................... $35,000 $35,000
    Promotion costs .......................................................................... $2,000,000
    Average revenue per customer (before discount) ........................................ $440 $50

    Required
    a. Estimate BFG's customer and overall profitability.
    b. Write a short memo that critiques BFG's customer service policies and measurements.
    c. Build your own spreadsheet. Develop a spreadsheet to answer requirement (a).

    © BrainMass Inc. brainmass.com June 3, 2020, 8:23 pm ad1c9bdddf
    https://brainmass.com/business/business-management/customer-profitability-problem-135587

    Solution Preview

    Beujolais Financial Group (BFG)

    Customer Segment Premium Standard Total
    Number of Customers 45,000 80,000

    Average Revenue per customer 440 50
    Total Revenue 19,800,000 4,000,000
    Customer Revenue After Discount 17,820,000 4,000,000 21,820,000

    No. of Customer Representatives 450 80
    Average Salary 35,000 35,000
    Total Salary 15,750,000 2,800,000
    Bonus 178,200 40,000
    Total Cost 15,928,200 2,840,000 18,768,200
    Promotional Cost 1,333,333 666,667 2,000,000
    Total Segment Cost 17,261,533 3,506,667 ...

    Solution Summary

    Detailed MS Excel spreadsheet containing the estimations of BFG's customer and overall profitability. File also contains a short memo that critiques BFG's customer service policies and measurements.

    $2.19

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