Getting Over Not Having Tech Service Costs in Your Waterfall

Whenever we run a requirements gathering session, one of the first questions we ask is What cost elements would you like to see in your price/margin waterfall that are not included in current margin reports today? Without fail, technical service costs are always the first response. The allure of having these costs in the waterfall is pretty clear, as companies would love to see which customers are consuming the most services and how much these costs reduce profit on those accounts.

The problem is that unless companies are willing to have their technical service resources enter their hours weekly into a time & expense system, there is simply no way to accurately allocate these costs back to specific customers instead of simply using a peanut butter approach (spreading the costs evenly by volume, revenue, etc). Since the thought of having resources enter their time weekly is not appetizing to pretty much every customer, we recommend moving forward with a very simple approach.

Whenever we sit down with a technical service manager, plant manager, or other sales support personnel we ask them to make a list of the Top 10 or Top 20 customers that they seem to spend the most time and resources on (i.e. Which customers require the most on-site support, extra testing, special labeling, packaging, product returns, etc?). We then take this list and calculate the current profitability level for each account (not including service costs).


For customers on the list with low overall or low % margin, a company can then decide whether to stop providing these services, charge for the services, or raise pricing to bring margins up to an acceptable level given the “neediness” of the customer. In the example above, Ted’s Contracting and DC Distribution appear to be consuming a large amount of services given their size and overall profitability.

This process is by no means perfect, but it is a simple way to ensure companies are dedicating services to the right customers instead of spending money on customers that deliver less value to their account portfolio. For more tips on the challenges of properly allocating costs to serve back to customers, please contact us anytime.