Worksheet: Allocate cost to serve to your twenty biggest accounts

When costs are spread by sales dollars, an account with small direct-to-store drops looks as profitable as one taking full pallets to a distribution centre. This sheet moves each cost line to an activity driver. It applies the result to your twenty biggest accounts this quarter and puts it in their account P&Ls. It builds the Competent step of the check:

Distribution model, drops, order size, merchandising and claims are allocated by activity drivers, giving a cost to serve by customer and channel that people trust.

Step 1. From a spread to a driver, line by line

Cost line	Poor (spread by sales)	Good (by activity)	Driver we will use	Cost last year ($m)	Rate per driver
Distribution model	One freight rate for all	Distribution centre and direct-to-store delivery costed apart
Drops	Freight spread by cases	Per drop, by delivery model and zone	e.g. drops by model	4.2	e.g. $310 a DC drop, $45 a store drop
Order size	Not counted	Per order, with a rate for orders below the minimum
Merchandising	Field team cost in overhead	Per store visit, by minutes in store
Claims and deductions	In overhead	Per claim, including the time to resolve it
Returns and unsaleables	Written off centrally	Per case returned or destroyed

Step 2. Apply it to the twenty biggest accounts

Account	Channel	Delivery model (DC or direct to store)	Drops	Average order (cases)	Merchandising visits	Claims	Cost to serve ($)

Continue to twenty.

Step 3. Put it in the account P&L

Account	Gross sales ($)	Trade spend ($)	Net-net revenue ($)	Cost of goods ($)	Cost to serve ($)	Margin after cost to serve ($)	Margin (% of net-net)

Step 4. Roll up by channel and get it accepted

Channel	Cost to serve (% of net-net)	Accepted by finance?	Accepted by sales?
Grocery majors
Independents through wholesalers
Pharmacy
Convenience and route
Distributors

Check	Done?
Cost to serve sits beside net price and trade spend in each top account P&L (date)
One decision it changed (a minimum order, a delivery model, a term)

Done when: distribution model, drops, order size, merchandising and claims are allocated by activity drivers. Finance and sales accept the result by customer and channel.

Adapted from our own pricing self-assessment (PSP, 2004).