How much does it really cost to serve each of your clients? If your answer is “I don’t know” or “roughly the same”, your business is probably cross-subsidizing unprofitable clients with the profits from your best ones, without knowing it.
Cost-to-serve is the total cost of all activities required to deliver a product or service to a specific client. It’s not just the product cost: it includes logistics, order processing, support, customizations, returns, account management, and everything else that consumes resources.
Why clients don’t all cost the same
Consider two clients with the same annual revenue of 100,000 euros. Client A orders regularly, pays on time, and rarely needs support. Client B places last-minute orders, demands urgent deliveries, requests constant customizations, returns product frequently, and requires monthly meetings. In traditional accounting, both appear equally profitable. In reality, Client B may cost 3-5x more to serve.
How to calculate cost-to-serve with TDABC
TDABC is the ideal methodology for calculating cost-to-serve because it measures actual resource consumption per client. The process involves mapping all client-related activities, building time equations reflecting each interaction’s complexity, and assigning costs based on actual time and resources consumed.
Know your cost-to-serve
If you don’t know what it costs to serve each client, you’re making pricing, investment, and resource allocation decisions in the dark. We offer a free assessment where we analyze your situation and show the path to total cost visibility.