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.

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
$10,000

0.8% of revenue. The gross margin said 25%.

Where the margin goes
Gross margin $300,000
Gross margin % 25.0%
Cost to serve $290,000
Cost to serve, % of revenue 24.2%
Contribution after cost to serve $10,000
Average order value $2,500
Gross margin$300,000
Eaten by cost to serve$290,000

What would fix it
Raise the price
9.2%
Change how you serve it
$128,000

The thinking behind this tool: The Revenue You Should Want to Lose →
It works through 2 customers where the larger account, at 3.5 times the revenue, returns less than one eighth of the contribution.

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. That is where a second set of eyes pays for itself. Start a conversation →