Strong sales, demanding service. What does this customer cost to serve?

Choose the question you need to answer. Are you reviewing a discount, extending an account, or considering whether a particular service arrangement can be offered more widely? Each calls for a defined comparison. A single profitable order does not establish whether a year of support leaves room for an additional discount.

Select a period that reflects the relationship and compare customers buying broadly similar offers. Identify unusual events and recurring commitments. Initial training may disappear after onboarding, while an annual planning exercise may be absent from a quiet month's figures. Keep these distinctions visible rather than treating every observed month as typical.

In its guidance on understanding business costs, the Business Development Bank of Canada starts by defining what is being costed. It distinguishes costs that can be traced directly from indirect costs requiring allocation. For your analysis, that means stating both the question and the boundaries of the calculation before collecting more data.

Review several actual orders with sales, operations and administration. Follow preparation, delivery and follow-up. What needs checking? Who resolves changes? Is there a separate report, a special delivery arrangement or repeated discussion about invoice details? Ask what causes each activity, not just how long it takes.

ACCA's explanation of activity-based management describes using activities to understand customer-related costs. Service departments can consume resources that an order's direct contribution alone does not reveal. This provides a useful basis for examining the surrounding work.

For an initial review, choose a few activities that could change the decision. Combine existing records with a small sample reviewed by employees. Mark estimated time as estimated. Asking people to log every minute indefinitely can create a larger administrative burden than the decision warrants. Agree why the information is needed and when the sample will be complete.

Consider this fictional monthly example for a components supplier. All amounts exclude VAT. Two business customers have equal net sales after discounts and equal directly assigned product and delivery-work costs. The additional service hours and extra transport below have not already been included. The assumed internal service cost is €60 an hour; this is an illustrative costing assumption, not a market rate.

On a small screen, scroll horizontally to read the full table.

The difference is €1,500. It warrants investigation, but the last line is not net profit. General overhead, any financing costs and other omitted items still need consideration. Have the person responsible for finance check the scope, the hourly cost calculation and possible double counting before using the figures commercially.

Test influential assumptions. If customer B used 24 service hours rather than 32, the remaining amount would be €1,080. The relationship still differs, but the evidence for a particular intervention is weaker. When an estimate could change your decision, improve the observation before treating it as a settled fact.

Customer B may order for several sites while customer A receives one combined shipment. Repeated calls may result from unclear confirmations sent by your own business. Alternatively, specialist advice may be the main reason that customer chooses you. Equal sales can therefore sit behind very different working arrangements.

Ask colleagues which work creates customer value, which is avoidable recovery work and which reflects an unclear promise. Someone providing thoughtful support should not be blamed for a margin problem when that support was never considered in the offer. Their judgement helps explain the economics and identify a workable improvement.

Keep appropriate discretion in place. Employees need to know what helpful service remains included and when they can discuss a different arrangement. Our article on handling service exceptions explores that everyday authority. The commercial review should give people clearer support for those decisions.

Develop a proposal around the actual cause. Combined ordering might reduce coordination. A scheduled review could replace repeated routine status requests while keeping urgent help available. Specialist assistance might become a separately described service with its own price and capacity. Problems caused by your own process call for improvement within the business.

Discuss the proposed arrangement with the customer and calculate its consequences. Fewer delivery slots only make sense if they fit the customer's operations. Keep strategic considerations visible too: a relationship may offer valuable learning or future business. Record that as a separate judgement, with an owner and a review date, rather than quietly treating possible future sales as current income.

Less activity also does not automatically mean lower cash expenditure. ACCA notes that fixed overhead can remain when activities are reduced. Describe what released capacity would allow the team to do, such as support other accounts, clear a backlog or improve the service. That makes the operational benefit more concrete.

Start with existing records linking customers, orders, agreed services and the reasons for additional work. Ask a technical partner to demonstrate how a calculation can be traced back to its inputs and how duplicated time entries are prevented. Show whether an amount was measured, calculated or estimated, rather than presenting all figures with the same apparent certainty.

Give employees useful service agreements and decision boundaries. Restrict detailed financial information to the people who need it for their responsibilities. An unexplained ranking of difficult customers provides little help to someone trying to deliver good service.

Choose a few comparable relationships and one commercial decision for your first review. Through business process analysis, IndustrylinQ connects those choices with how people work and the information they need. The result should help you decide which attention is worth preserving, which arrangement needs redesigning and what practical support will make that possible.