Cost to Serve (CTS or C2S) is an accountancy and financial planning tool used to calculate the profitability of serving the needs of a particular customer account, based on the actual business activities and overhead costs incurred in servicing that customer or customer type. Businesses are able to reposition customers and services, and how they are served to improve overall margin.
Gartner's glossary defines the term as a form of analysis which The Australian Food and Grocery Council describes Cost to Serve (C2S) as
Supply chain management In the context of supply chain management the tool can be used to analyse how costs are consumed throughout the supply chain. It shows that each product and customer demands different activities and has a different cost profile. The product and customer profiles are often illustrated using a Pareto analysis curve which highlights those that contribute most to the company's profit and those that erode it.
Cost to Serve is considered less resource-intensive than Activity Based Costing (ABC) as it focuses on aggregate analyses around a blend of cost drivers. The tool gives an integrated view of costs at each stage of the supply chain, providing a fact-based view to unravel the complexity of multiple supply chains and channels to market. It enables a focus on both long-term decisions and the identification of easily-achieved process changes to improve profitability.O'Byrne, R., Cost to Serve – A Smarter Way to Improved Supply Chain Profitability, Logistics Bureau, published 14 June 2022, accessed 11 February 2023 Seifert and Markoff note that
See also Pareto principle Activity based costing Supply chain management
Notes
References
Further reading Christopher, M (2005), ‘Logistics and Supply Chain Management’, 3rd edition, Financial Times/Prentice Hall Braithwaite, Samakh (1998), 'The Cost-to-Serve Method', The International Journal of Logistics Management, Volume 9 Issue 1 p69-84, ISSN 0957-4093 Guerreiro, Bio, Merschmann (2008), 'Cost-to-serve measurement and customer profitability analysis', The International Journal of Logistics Management, Volume 19 Issue 3 p389-407, ISSN 0957-4093 Australian Food and Grocery Council / Focus Information Logistics, 'A Guide to using cost to serve to enable effective customer engagement'