Customer profitability and cost to serve
Gross margin stops at the product. Covirage joins your ledger to your delivery, order and activity files and takes off what each customer's own behaviour costs: drops, keyed order lines, visits, returns and late payment. The ranking of customers usually changes, and the table shows which behaviour to change for each account that loses money.
Gross margin percent is highest on small accounts that buy at list. They also take small, frequent deliveries and key their orders by phone. Allocating cost by revenue gives every customer the same percentage and shows nothing, so each cost is allocated by the activity that causes it.
Driver counts from your own files, multiplied by a rate that is each cost pool divided by its total driver count.
Gross margin less rebates and cost to serve, with the ratio of cost to serve to margin beside it. Above 100 percent the account loses money as served.
For each loss-making account, the largest driver: drop size, order channel, delivery days or payment terms.
Three steps, in this order.
The ledger with margin, plus delivery, order and visit files, and the cost pools from finance. Client IDs only.
Which cost is allocated by which activity. Fixed overhead is left out, because no customer's behaviour changes it.
Customers ranked by contribution, with the identity that allocated cost equals the pools checked before anything is shown.
Short answers. The Help centre has the long ones.
Rarely. The table shows how they are served, which can usually be changed: a minimum order value, fewer delivery days, moving orders to a portal.
Because overhead spread by revenue is the same percentage for every customer and cannot change a ranking. It only makes customers look unprofitable who are paying toward costs that would remain.
Less than you would think. Whether a drop costs 35 or 42, the account taking 250 small drops is in the same place on the list.
Written for this job: the measures, the data you already hold, and the arithmetic.
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 readHow 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 readCustomer profitability is reported at three levels that are often confused. Gross margin is revenue less the cost of the goods. Contribution margin takes off the costs the customer's own behaviour causes: deliveries, order handling, sales time, returns, rebates and credit. Net margin takes off a share of fixed overhead as well. This page sets out the three definitions, computes all of them for three customers, shows why the ranking changes at the contribution line and why it should not be taken further, and says which decisions each level is for.
17 Sept 20264 min readThe honest answer to what cost to serve a distributor or supplier should run per customer: the 8 to 15 percent of revenue figures quoted depend on which costs are allocated, on the driver used to allocate them, and on whether cost to serve is read against revenue or against gross margin. This page gives the ranges by desk, the three measurable things that set the right figure for one business, and the table to compute before anyone quotes a percentage.
17 Sept 20263 min readThe honest answer to what a good top-ten customer share is: it depends on the industry's normal, on the trend at each of the top accounts, and on whether the share is concentrated in one buyer or spread across ten. This page gives the ranges commonly quoted, when each is meaningless, the three measures that turn the question into a table, and the figure to compute before anyone quotes a percentage.
17 Sept 20264 min read