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Wiseman Ltd: customer profitability

Wiseman Ltd, divides its customers into Gold Customers and Silver customers.

The Company has one full-time customers representative per 1000 Gold customers and one full-time customer representative
per 10,000 silver customers.Customer representatives receive salaries plus bonuses of 10 % of customer gross margin.

Wiseman spends 90% of its promotion costs on Gold customers to encourage their loyalty.

Customer costs Total Gold Silver
Nos of Customers 100,000 30,000 70,000
Average customer rep salary $35,000 $35,000
Promotion costs $4,000,000
Average gross margin per customer $220 $70

a) What is the excess of gross margin over customer costs for each category of customer?
b) Write a short opinion after you evaluate customer profitability

Solution Preview

In my opinion, the gross margin per customer is a bit misleading. It looks like the gold customers are very profitable. However, gold customers require a lot more attention from customer representatives and involve much more promotion costs than silver ...

Solution Summary

Your response includes a report in Excel (click on cells to see computations) and a 128 word discussion about the results in the report.