Cost to serve is the cost of serving a customer beyond the goods themselves: delivery drops, returns and credits, order and pick lines, each at a stated rate. Subtracted from gross margin to give contribution per account, which ranks accounts differently from revenue.
Cost to serve is what it costs to serve a customer beyond the cost of the goods or the fee: deliveries, order lines, sales visits, returns and credits. Each driver is counted for the customer and multiplied by a stated rate, and the total is subtracted from gross margin to give contribution per customer. Ranked by contribution, customers rarely come out in the same order as by revenue.
A ranking built on unstated rates cannot be defended. Put them on the report.
Averaged cost to serve reproduces the revenue ranking. Use the account's own deliveries and returns.
Driver counts per customer, such as drops, order lines by channel, visits and return lines, each multiplied by a rate equal to the cost pool divided by the total driver count.
Driver rate = cost pool ÷ total driver count Cost to serve = Σ (customer driver count × driver rate) Contribution = gross margin − cost to serve
Delivery costs $1.9 million for 50,000 drops: $38 a drop. A customer taking 250 drops carries $9,500 of delivery cost on $90,000 of revenue: 250 × $38 = $9,500, or about 10.6 percent of revenue, before order lines and returns are added.
Fixed overhead included in the pools, which makes every small customer look unprofitable for costs they do not cause. The activity-based costing guide sets out the pools and drivers, and the Excel walkthrough computes cost to serve per customer.