Cost to serve
Also called cost-to-serve, CTS
Reviewed by Dasha ShakovVP Marketing, Proton
Updated
What is cost to serve?
Cost to serve is what it costs to do business with a particular customer beyond the products themselves, from sales calls to delivery and collections. It includes quoting, order entry, picking, returns and credit, and subtracting it from gross profit shows which customers are actually profitable.
How it works
Two customers with the same sales and margin can cost very different amounts to serve. One that sends a large EDI order every week is cheap; one that phones in 30 small rush orders, each needing its own delivery, may lose money.
Cost to serve example
Two contractors each bought $200,000 last year at a 25% margin. One placed 40 orders; the other placed 600, mostly by phone and with same-day delivery, and barely broke even after cost to serve.
Related terms
- Gross marginGross margin is the share of sales a distributor keeps after paying for the goods it sold: gross margin % = (revenue − COGS) ÷ revenue.
- Net marginNet margin is the percentage of revenue a company keeps as profit after all expenses, including COGS, operating expenses, interest and taxes.
- Order entryOrder entry is putting a customer’s order into the ERP as a sales order, matching each item to the right SKU, quantity, unit of measure and price.
- Value-added distributorA value-added distributor is a distributor that does extra work on what it sells, such as assembly, kitting, cutting to length or custom labeling.
