Customer Profitability Problem
Not what you're looking for?
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).
Purchase this Solution
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.
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 ...
Purchase this Solution
Free BrainMass Quizzes
Business Processes
This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.
Introduction to Finance
This quiz test introductory finance topics.
Situational Leadership
This quiz will help you better understand Situational Leadership and its theories.
Basics of corporate finance
These questions will test you on your knowledge of finance.
Production and cost theory
Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.