Cost to serve

The cost of serving an account beyond the goods: delivery drops, returns and credits, pick lines, each at a stated rate. Subtracted from gross margin to give contribution per account, which ranks accounts differently from revenue.

DefinitionThe cost of serving an account beyond the goods: delivery drops, returns and credits, pick lines, each at a stated rate. Subtracted from gross margin to give contribution per account, which ranks accounts differently from revenue.

Rates stated

A ranking built on unstated rates cannot be defended. Put them on the report.

Account's own drops

Averaged cost to serve reproduces the revenue ranking. Use the account's own deliveries and returns.

How it is computed

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.

Example

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.

Where it goes wrong

Fixed overhead included in the pools, which makes every small customer look unprofitable for costs they do not cause.

Articles that use this term

Board and management reporting

Cost to serve by industry: what the account costs beyond the goods, on twelve desks

Cost to serve is what it takes to serve an account beyond the product, and what that is differs by desk: drops and returns for a distributor, adviser hours for a wealth firm, support tickets for a SaaS company, pursuit hours for a consultancy, detention charges for a forwarder. This hub gives, for twelve industries, the cost components, the rate each is stated at, the source, and the measure it feeds, with the guide for each.

16 Sept 20263 min read Board and management reporting

Customer lifetime value from the ledger: the honest version

How to compute customer lifetime value from data a B2B company actually holds: contribution per year per customer from the ledger and cost to serve, expected remaining life from the company's own churn by segment and tenure, and the two together, with the range rather than a point, the identity that ties it to the ledger, and the four assumptions that turn an honest figure into a marketing one.

16 Sept 20263 min read Board and management reporting · Customer service

Effort per account: support hours against revenue, and the accounts that cost more than they pay

How a customer service leader measures the support effort each account consumes, from ticket handling time and the account list: hours per account per quarter, effort per dollar of revenue against the norm for accounts of the same tier and product, the accounts far above it and the categories driving them, the accounts far below it that may be disengaged, and the two conversations, product and commercial, that the split points to.

16 Sept 20262 min read Board and management reporting · Distributors

Margin by account: the accounts that buy the most and earn the least

How a distributor computes gross margin per account from invoice lines and cost, adds the cost to serve from delivery and returns, ranks accounts by margin rather than revenue, and finds the large accounts whose price agreements, delivery frequency and returns leave less than the small ones, with the identity that ties the account margins to the ledger.

16 Sept 20262 min read Territory, capacity and quota planning · Distributors

Order size and drop frequency: the accounts that could take half the deliveries

How a distributor finds the accounts whose delivery frequency is out of proportion to their order size, from the delivery log and the invoice lines: drops per week against value per drop, the norm from accounts of the same size and type, the accounts on daily drops that similar accounts serve twice a week, the cost of the extra drops, and the offer that consolidates without losing the account.

16 Sept 20262 min read How-to guides

Sales analytics KPI definitions: thirty measures on one page, each with its formula

Thirty sales and commercial measures defined in one sentence each with the formula, grouped by what they describe: coverage and activity, wallet and depth, retention and churn, pipeline and forecast, concentration and reporting, and data quality. Each links to a full definition. Written so that a team can adopt the definitions as its own, version them, and stop arguing about what a number means.

16 Sept 20264 min read