Two customers can generate the same revenue and very different profit. One sends clean EDI orders in full pallets; the other emails PDFs, changes orders after confirmation, calls for status and short-pays invoices. Cost to serve makes that difference visible, so sellers can price, service and prioritize accounts on real numbers rather than revenue alone.
Common drivers of a high cost to serve:
- Manual order entry from email, phone, PDF or spreadsheet
- Frequent order changes and rush orders
- Special packing, labeling or delivery requirements
- Status calls and customer service follow-up
- Invoice disputes, credits and claims and deductions
Cost to serve is usually calculated with activity-based costing: identify the activities involved in serving customers, assign each a cost, and allocate those costs to customers based on how often they use each activity. Reducing it means removing manual work from the order-to-cash process without making it harder for customers to buy, especially for non-EDI trading partners.