Cost to serve
Everything it costs to look after a customer after the sale is agreed.
01 What it is
Why anyone looks at this number
Everything it costs to look after a customer after the sale is agreed.
Gross margin says a customer is profitable. Cost to serve is what decides whether they really are. It is usually the difference between a good account and an expensive one.
02 The formula
How it is worked out
Cost to serve = (delivery + service + returns + order_handling) ÷ customers or orders grain : quarter × customer × channel unit : currency per customer or order source : Logistics, service desk and returns systems joined to the customer master
Allocate by the driver, not by revenue. Splitting delivery cost by revenue makes every large customer look expensive and every small one look cheap, which is the opposite of the truth.
03 Worked example
The same number, with real inputs
| Gross margin on account | €180k |
| Delivery and handling | €96k |
| Service and returns | €61k |
| Calculation | 180 − 96 − 61 |
| Result | €23k, or 12.8% of the gross margin |
A large account that looked like a 36% margin customer is delivering 5% after the cost of serving it. The fix is usually order pattern, not price.
04 What moves it
Four things that actually change this number
Order pattern
Many small orders cost far more than the same volume in fewer drops.
Delivery profile
Distance, drop size, access restrictions, and whether you deliver on time first time.
Service intensity
Support tickets, technical help, dedicated account management.
Returns and claims
Both the credit and the handling cost behind it.
05 Where the number lives
The system, the record and the fields
| System of record | Key record | Fields you need |
|---|---|---|
| Logistics, service desk and returns systems joined to the customer master | Delivery, Service ticket, Return, joined to Customer | freight_cost, drop_count, ticket_count, return_value, order_lines |
Allocate by the driver, not by revenue. Splitting delivery cost by revenue makes every large customer look expensive and every small one look cheap, which is the opposite of the truth.
06 How it goes wrong
Three ways this metric misleads people
Allocating by revenue
It guarantees the answer you already assumed and teaches you nothing.
Fix: Allocate by drops, lines, tickets and returns — the things that actually drive the cost.Leaving out returns
Returns hit revenue and cost twice, and are often invisible in account profitability.
Fix: Include both the credit and the handling.Never acting on it
The analysis is done once and filed, because changing customer behaviour is hard.
Fix: Turn it into order minimums, delivery schedules and pricing rules with an owner.08 Questions
Frequently asked
How detailed does cost to serve need to be?
Enough to separate customers by behaviour, not enough to satisfy a cost accountant. Four or five real drivers usually rank accounts correctly.
What do we do with unprofitable customers?
Change the behaviour before changing the customer: order minimums, delivery days, self-serve support. Most expensive accounts become good ones once the pattern changes.
One definition, everywhere it is used
SCIKIQ stores this metric once and serves it to every dashboard, board pack and agent that asks.