Calculating and understanding cost-to-serve (CTS) is key for distributors to make strategic pricing decisions that will lead to profit and growth. This is especially true today, as a cost-plus margin strategy doesn’t hold up in the current marketplace.
If you’re a distributor pursuing growth and pricing optimization in this climate, knowing your CTS and considering with every step will ensure you’re not wasting resources and losing money with your efforts. But how you design CTS calculations makes a difference in terms of adoption. A more complicated approach might be off-putting for your sales force – and CTS can certainly get complicated.
In our experience, two routes to calculating CTS are most effective for distributors: Activity-Based Costing (ABC) and The Surrogate Method.
In a recent article for Modern Distribution Management, Pradip Krishnadevarajan outlines each of these methods and the critical factors distributors should use in their calculations.
Learn a simpler, more effective way to apply CTS in your pricing decisions.
Learn more about how ACTvantage approaches pricing optimization for distributors.