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Cost to serve
What it is
The full cost of serving a specific customer, channel or order - not just the product cost, but delivery, credit, returns, discounts, service and the sales effort behind it
It frequently reveals that a large share of customers or SKUs generate no profit at all, and some destroy it
Impact on industries
- Exposes unprofitable customers, channels and products that gross margin analysis hides entirely
- Guides pricing, minimum order sizes, delivery charges and channel strategy with evidence rather than intuition
- Requires allocating shared costs, and the allocation basis materially changes which customers look profitable
- A high cost to serve can be worth paying where the customer anchors a route, a category or a reference position