Free Tool · Interactive

Cost-to-Serve Calculator

Gross margin tells you whether the product was worth making. It says nothing about whether the customer was worth keeping. Enter an account's revenue and the 5 drivers of serving it, and the answer updates as you type. Nothing is sent anywhere, the maths runs in your browser.

Cost-to-serve waterfall for the example account Gross margin of $300,000, less order handling of $68,400 (380 orders at $180), delivery of $83,600 (380 deliveries at $220), returns and credits of $30,000, account support of $32,000 and financing of payment terms of $15,000, leaves $71,000 of contribution after cost to serve. $300,000 −$68,400 −$83,600 −$30,000 −$32,000 −$15,000 $71,000 Grossmargin Orderhandling Delivery Returnsand credits Accountsupport Paymentterms Contributionafter costto serve Cost-to-serve waterfall for the example account Gross margin of $300,000, less order handling of $68,400 (380 orders at $180), delivery of $83,600 (380 deliveries at $220), returns and credits of $30,000, account support of $32,000 and financing of payment terms of $15,000, leaves $71,000 of contribution after cost to serve. $300k −$68.4k −$83.6k −$30k −$32k −$15k $71k Gross margin Order handling Delivery Returns Account support Payment terms Contribution
The example account in the calculator below: $229,000 of cost to serve turns a $300,000 gross margin into $71,000.
The Account
What this customer buys in a year.
Product cost only. Everything else goes below.
What It Costs to Serve
Receiving, picking and processing one order, however small.
One drop to one address. Multiple depots mean multiple drops.
Annual cost of goods sent back, credited or rejected.
Account management and technical support, at a loaded rate.
What the receivable costs you to carry for as long as they take to pay.
Levers to Test
The margin you want the account to reach, and the number of orders and deliveries you could consolidate down to.
Reset to example numbers
Contribution after cost to serve
$71,000

5.9% of revenue. The gross margin said 25%.

Where the margin goes
Gross margin $300,000
Gross margin % 25.0%
Cost to serve $229,000
Cost to serve, % of revenue 19.1%
Contribution after cost to serve $71,000
Average order value $3,158
Gross margin$300,000
Eaten by cost to serve$229,000

What would fix it
Raise the price
4.1%
Change how you serve it
$88,000

Price or service
Price change against consolidation, for a 10% contributionEach point on the line pairs a price change with a number of orders and deliveries a year that together bring the account to 10% contribution after cost to serve. Above the line the account meets that target; below it, it misses. Today it runs 380 a year at today's price and misses the target; price alone needs a rise of 4.1%. Consolidation alone reaches 10% at 258 orders and deliveries a year. At 160 a year, the price could fall 3.3% and still reach 10%. Every 100 fewer orders and deliveries is worth 3.3% of price.0100200300400−4%−2%0%+2%+4%+6%Price changeOrders and deliveries a year, after consolidationTodayPrice onlyService onlyEvery point on this line reaches 10%Price change against consolidation, for a 10% contributionEach point on the line pairs a price change with a number of orders and deliveries a year that together bring the account to 10% contribution after cost to serve. Above the line the account meets that target; below it, it misses. Today it runs 380 a year at today's price and misses the target; price alone needs a rise of 4.1%. Consolidation alone reaches 10% at 258 orders and deliveries a year. At 160 a year, the price could fall 3.3% and still reach 10%. Every 100 fewer orders and deliveries is worth 3.3% of price.0100200300400−4%−2%0%+2%+4%+6%Price changeOrders and deliveries a year, afterconsolidationTodayPrice onlyService onlyEvery point on thisline reaches 10%
  • Meets the target
  • Misses it
  • Today
  • Your consolidation

Consolidation alone reaches 10% at 258 orders and deliveries a year.

At 160 a year, the price could fall 3.3% and still reach 10%.

Every 100 fewer orders and deliveries is worth 3.3% of price.

The thinking behind this tool: The Revenue You Should Want to Lose →
It works through 2 customers where the larger account delivers less total contribution than the smaller one, despite 3.5 times the revenue.

One account is arithmetic. A portfolio is a different problem: the costs you would save are only avoidable if the capacity actually goes, and the ranking usually changes what you sell as well as what you charge. Start a conversation →