“A customer-profitability profile highlights those customers who should be dropped to improve profitability.” Do you agree? Explain.

Answer:

No. A customer-profitability profile highlights differences in current period's profitability across customers. Dropping customers should be the last resort. An unprofitable customer in one period may be highly profitable in subsequent future periods. Moreover, costs assigned to individual customers need not be purely variable with respect to short-run elimination of sales to those customers. Thus, when customers are dropped, costs assigned to those customers may not disappear in the short run.