Cost to serve (CTS) is a business model that calculates the overhead costs required to service each customer based on their activities. It provides an aggregate analysis of each customer's cost profile to determine their true profitability. Companies use CTS to model price leakages and specific costs related to serving customers. Costs are tracked as they are incurred during manufacturing and sales. CTS also uses Pareto analysis to identify the top causes that need addressing to resolve most problems and focus management on high impact risks.

1. COST TO SERVE
BUSINESS MODEL

2. INTRODUCTION
• Cost to serve business model is a process-driven accountancy tool
• It helps in the calculation of the profitability of any customer
• It basically gives us the overhead costs that are incurred to service that customer based
on the actual business activities
• It basically gives us the aggregate analysis of the cost profile of each and every
customer

3. HOW DOES A COMPANY USE COST TO
SERVE MODEL
• Company begins with building a cost-to-serve models by setting targets that reflect their
supply chain priorities
• It enables them to model both price leakages and specific costs related to serving their
customer
• Costs are recognized as and when they are incurred during the various activities involved in
manufacturing a product and selling it to the customer
• It involves categorizing customers according to various priority or value criteria for better
management of costs
• It includes CTS in logistics picking, packing and shipping, sales costs, marketing efforts, etc.,
resulting in a customer's net margin
• The end goal is to shift behaviours through insights into what true costs are

4. PARETO PRINCIPLE
• CTS also uses the Pareto Analysis to assess the end results
• It helps stimulate thinking and organize thoughts
• It also helps to identify the top portion of causes that need to be addressed to resolve
the majority of problems
• The application of the Pareto analysis in risk management allows the management of
the Company to focus on those risks that have the most impact on their project

5. Cost-to-serve calculations are
intended to accurately assess the
profitability of a product for each
individual customer
CTS customer profitability helps to
identify the functional areas and
activities that contribute to the costs
for a customer
CTS customer profitability looks
beyond the traditional measures of
revenue and gross margins. It gives
a truer picture of profitability by
including the hidden costs and the
costs that cannot be apportioned by
traditional costing methods