Customer profitability analysis goes beyond revenue to assess the true value of each customer relationship by subtracting all direct costs (support, onboarding, infrastructure) from the revenue they generate. It identifies which customers are most profitable and which are costing more than they contribute.

Example: A SaaS company discovers that its largest customer by revenue ($50,000/year) actually generates a loss due to excessive support costs ($60,000/year). This insight leads to a contract renegotiation that includes a premium support tier priced separately.