Cost-to-Serve: A Hidden Metric That Impacts Profitability

What Is Cost-to-Serve?

Cost-to-serve (CTS) is the total cost associated with delivering a product or service to a customer—including order processing, fulfillment, transportation, customer service, and returns.

It’s often an invisible KPI. Many manufacturers and distributors track gross margin by customer or product but miss the nuanced costs involved in servicing each order.

And that’s a mistake—because the difference between profitable and unprofitable customers often lies in the details of how much it costs to serve them.

Why CTS Matters in 2025

In an era of tight margins, rising labor costs, and growing customer expectations, knowing your CTS is more important than ever.

Here’s why:

• You can’t improve what you can’t see

• Not all revenue is good revenue

• High CTS erodes profitability, even on large accounts

• It helps you price more strategically

• It enables segmentation and service-level alignment

And yet, many B2B organizations have never calculated it—or if they have, they haven’t connected it to operations decisions.

What’s Included in Cost-to-Serve?

CTS isn’t just about shipping costs or raw materials. It includes:

• Time spent on manual order entry

• Exception handling and order corrections

• Order-related customer service tickets

• Returns and rework

• Freight and handling

• System maintenance for custom customer workflows

• Labor tied to fulfillment and logistics

In other words, anything you spend to deliver on the promise of the sale.

A Simple Example

Let’s say you have two customers:

Customer A:

• Sends standardized POs weekly

• Has accurate order data

• Rarely requires corrections

• Uses preferred shipping

Customer B:

• Sends handwritten POs via email

• Requires constant clarification

• Has frequent returns due to incorrect SKUs

• Insists on custom delivery schedules

On paper, both may generate the same revenue. But one costs 2–3x more to serve.

If you’re not measuring that, you could be subsidizing low-margin, high-maintenance accounts without realizing it.

How Manual Processes Inflate Cost-to-Serve

Manual order processing is one of the most overlooked drivers of high CTS. Why?

• Data entry is time-consuming and labor-intensive

• Errors require expensive rework or returns

• Exceptions slow down the entire system

• CSRs are forced into reactive firefighting roles

• Orders can’t be processed at scale without hiring more people

Multiply that across hundreds or thousands of orders per month, and it adds up fast.

Automation: Your CTS Secret Weapon

Here’s how automation helps lower cost-to-serve without sacrificing service:

✅ Fewer Touches

With Conexiom, orders move from inbox to ERP with no manual intervention. Less labor, fewer bottlenecks.

✅ Fewer Errors

Data is validated automatically, reducing the need for customer corrections, returns, and credits.

✅ Exception Management

Only orders with issues are routed to your team—keeping the majority of workflows clean and fast.

✅ Scalable Volume Handling

Automation lets you handle more orders without increasing headcount or overtime.

✅ Better Visibility

You gain data on process performance, allowing you to refine and optimize continuously.

Cost-to-Serve as a Strategic Tool

Lowering CTS isn’t just about cutting costs—it enables smarter decisions across the organization:

• Pricing: Adjust pricing for high-maintenance accounts

• Account Management: Identify profitable vs. unprofitable segments

• Operations: Reallocate staff from manual entry to value-added roles

• CX: Improve customer satisfaction by reducing fulfillment issues

• Finance: Tie CTS data to margin models for better P&L visibility

By making CTS visible, you can manage it proactively—not just reactively.

Getting Started: How to Calculate CTS

You don’t need a full-scale analytics platform to begin.

Start by calculating:

1. Total monthly labor hours spent on order processing

2. Number of orders processed manually

3. Average time spent per exception or error

4. Returns or credits tied to order mistakes

5. Time spent on post-sale customer support per account

From there, divide total costs by the number of orders, and segment by customer or region.

The goal isn’t perfect precision—it’s directional insight.

A Conexiom Customer Example

One electronics distributor used Conexiom to reduce their order processing time by 80% and eliminate nearly 95% of manual touches. That led to:

• 2 fewer FTEs needed per region

• A 60% reduction in order-related support tickets

• Higher gross margin per account—without raising prices

Their insight? It wasn’t pricing that was hurting margin—it was how much it cost to deliver the order.

Final Thought

Cost-to-serve doesn’t show up on invoices. But it shows up everywhere else—in customer complaints, in support tickets, in missed deadlines, in operational fatigue.

If you want to grow profitably, you can’t just focus on revenue. You need to focus on how efficiently you fulfill that revenue.

With order automation, you lower the hidden costs that drag down your margins—while building a stronger, more resilient operation.

CTA:
Want to know what your cost-to-serve actually looks like—and how to improve it? Talk to a Conexiom expert and get a free CTS audit tailored to your business.