How to Decrease Cost to Serve With Tom Butt From Summit Advisory Team / Elevate

Tom Butt, chief customer success officer at Summit Advisory Team and Elevate, was first featured on the second episode of Unboxing Logistics, where he and Lori talked all things peak season. Now, Tom is back to explain how merchants can improve profit margins by decreasing their cost to serve. 

Four costs businesses can control 

Cost to serve (CTS) encompasses four main costs: cost of goods sold (COGS), shipping, labor, and supplies. When you drive these costs down, profit margins go up. 

While all these costs influence a business’s supply chain, Tom points out that “it's that shipping piece that people are really struggling to figure out.” 

How do customers buy your products?

Are your customers buying things in the store? Buying online and picking up at the store? Having the product shipped to them?

Tom explains that you should “be intentional with placing your merchandise in the place that your customer wants to buy it.” Before you can cut costs, you have to understand the customer buying journey through data analysis. 

A key metric: operating margin

One of Tom’s go-to metrics is operating margin. To calculate, determine your revenue, then subtract all your costs.

Operating margin = revenue from sale – (cost of goods + shipping cost + labor cost + supplies cost)

“If you can look at that at a granular order level, you can see how much money you made on any particular order.”

Links

• Connect with Tom on LinkedIn – https://www.linkedin.com/in/tombutt/ 
• Visit the Summit Advisory Team Site – https://summitadvisoryteam.com/ 
• Visit the Elevate Site – https://elevate.dev/