Maximizing Profitability and Return on Investment: A Short Clarification on Reinartz, Thomas, and Kumar

Abstract

Reinartz, Thomas, and Kumar (2005) provide a valuable methodology for balancing resources between customer retention and acquisition. They also conclude that optimal profitability (net return) coincides with optimal return on investment. This article clarifies this perhaps surprising conclusion and shows that it arises from the authors' methodology rather than from the data. More conventional analysis of the same data indicates that maximum return on investment is reached with lower expenditure than maximum profitability.