Cost to Serve analysis helps an organization to get clear visibility if a customer is contributing to the bottom line or not. It facilitates informed decisions to transform unprofitable customers into profitable ones. Organizations can have better control over different commercial strategies, improve and optimize high-cost processes.
Classifying existing clients into four quadrants based on the cost to serve analysis and revenue can give great insights into where each customer stands and which strategies the company should adopt to improve profitability. Refer to the below figure for the classification.
Analysis of the above quadrants helps organizations to estimate strategic opportunities to make all customers more profitable. Some of these opportunities could be:
- Restructuring distribution channels.
- Renegotiation with customers.
- Shifting customers’ interest to richer and higher-margin products.
- Gain more volume with low cost to serve customers through discounting.
- Identifying price-raising opportunities.
- Abandoning products, services, or customers.
Try out the free demo for Cost to Serve Analysis using Microsoft Power BI here.
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