When preparing customer-level profitability analysis results, one key focus is determining which customers contribute the most and the least to total profit.
The cumulative profitability curve-or whale curve-helps visualise which customers account for the majority of profit and which ones are destroying it.
Over time, customers may become less profitable or transition from unprofitable to profitable. This is where customer migration analysis can help identify these patterns.
Customer migration analysis is a method for tracking how customers shift between profitability segments across two different time periods.
To conduct this analysis, two comparable periods are required. It typically begins with an annual assessment, where customers are divided into five groups (bins), with Bin 1 representing the most profitable and Bin 5 the least profitable. By comparing both periods, we can determine whether a customer moved between bins.
The table below shows the starting period in rows and the comparison period in columns. Each bin represents a profitability group. Key findings include:
1. The 89.7% of highly profitable customers in the first period (Bin 1) remained in Bin 1, while 2.7% became unprofitable, moving to Bin 5.
2. Conversely, 2.5% of initially unprofitable customers (Bin 5) transitioned to profitability in the next period.
The diagonal indicates that most customers stayed in their original group. Another way to visualise customer migration is through heat-maps, as shown below.
Note that the bin order has been adjusted in this visualisation. Here, we observe that 8 customers moved from Bin 1 (highly profitable) to Bin 5 (unprofitable). Decision-makers should investigate these cases to identify root causes and take corrective action.
Conclusion
Customer migration analysis helps track how customers shift between profitability tiers-whether deteriorating (from highly profitable to unprofitable) or improving (from unprofitable to profitable). This insight enables businesses to intervene strategically, retaining high-value customers and addressing risks in underperforming segments.
Attached you may find this article in the English and Spanish version.
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Abner Huertas
Business Consultant
Guatemala
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