Improving Profitability Through Cost-to-Serve

Understand your business better with visibility into profitability

Few companies can say they have true visibility into their profitability, including which of their products or customers are the most or least profitable, or where their products accrue costs as they travel through the supply chain. Amid inflationary pressures creating additional stress on profit margins, companies with a greater understanding of cost absorption through a cost-to-serve program can identify opportunities to improve profitability.

BDO’s Management Consulting professionals deploy cost-to-serve programs to help companies better understand their businesses and improve profitability. Consider a company that needs to raise its prices but lacks the data to justify that decision. With the results of a cost-to-serve analysis, a company can justify adjusting its prices when negotiating with clients and vendors. We also see companies gain insight into the potential cost of their new business pipeline, which enables decision-makers to offer better quotes for prospects or assess whether there is capacity to take on a new project.

Understanding where and how your business is profitable provides the foundation for transformation and future growth

Learn more about our approach and how we’ve helped various companies use cost-to-serve to improve profitability.

How we think about cost-to-serve

A methodology for measuring the true activity costs associated to meeting customer specific needs at a customer and product or service level. Typical questions that prompt a cost-to-serve engagement include:

  • Which of my products/customers are most/least profitable?
  • What is the mix of low margin product and customer combinations?
  • How might we differentiate unprofitable customers?
  • Is there commonality across unprofitable customers?
  • Are high-cost processes contributing to labor cost overruns?

  • Informs areas of process improvement and optimization to reduce cost
  • Enables and improves decisioning around operational efficiency, segmentation, and pricing
  • Identifies enablers for Finance efficiency and opportunities for improving return on sales (ROS)
  • Provides the means for assessing and filtering new customer acquisitions for profitability prior to a sale
  • Provides rapid visualization and data analytics into customer and product/service profitability from activity utilization

  • Cost of Goods Sold1 (COGS)
  • Service Levels
  • Production Costs2
  • Customer Care
  • Technical Service Expenses
  • Customers
  • Financial Data
  • Order Size
  • Order Value
  • Order Frequency
  • Logistics (Transportation)
  • Indirect Costs3
  • Products & SKUs
  • Business Units/Locations

1Inclusive of Materials, Labor, Equipment, Manufacturing Overheads, etc.

2Examples: Cost Per Machine, Machine Setup, Machine Hours, etc.

3Examples: Customer Warranties, Rebates, etc.

  • Multidimensional Customer/Product Profitability Model
  • End-to-end Value Stream Analysis
  • Confirms Strategic Direction
  • Informs strategic opportunities, operational gaps and cost optimization areas