Cost-to-Serve Model & Financial Performance Scorecard

Client Context

A mid-sized IT services business with a diverse customer base was pursuing ambitious growth targets. While revenue tracking existed, leadership lacked a holistic view of profitability and cost-to-serve at customer and segment levels.

Sales targets were set annually at a high level, with limited ability to cascade them meaningfully to clients or monitor performance dynamically throughout the year. As a result, growth decisions were often disconnected from margin realities and cost structures.

The client engaged to develop a cost-to-serve–driven performance framework that would align commercial execution with financial discipline.

Key Challenges

Limited Visibility into True Profitability

Revenue reporting did not reflect:

• Direct costs attributable to customers and products

• Indirect cost-to-serve components (support, operations, overhead)

• Margin variability across customers with similar revenues

This obscured which growth was value-accretive versus margin-dilutive.

Static Sales Target Setting

Sales targets were:

• Set annually at an aggregate level

• Not systematically cascaded to customers or months

• Poorly aligned with seasonality, customer behavior, and capacity

This limited accountability and made in-year course correction difficult.

Fragmented Performance Monitoring

There was no unified view combining:

• Revenue performance vs. targets

• Gross margins

• Direct and indirect cost allocation

As a result, commercial and finance teams lacked a shared performance language.

Solution Design

A Cost-to-Serve Model and Financial Performance Scorecard was designed to integrate profitability analysis with dynamic sales target management and ongoing performance monitoring.

The solution was built as a decision-support system, enabling both strategic planning and operational control.

Cost-to-Serve Modeling

A structured cost allocation framework was developed to calculate:

• Direct costs at customer and product level

• Indirect costs allocated using relevant operational drivers

• Fully loaded cost-to-serve per customer

This provided a true profitability view beyond gross margin.

Financial Performance Scorecard

A unified scorecard was developed to present:

• Revenues vs. targets

• Gross margins

• Direct and indirect costs

• Contribution and profitability by customer and segment

The scorecard enabled consistent interpretation across sales, finance, and management.

Dynamic Sales Target Setting

The model supported:

• Cascading annual sales targets down to customers

• Monthly target distribution using configurable weighting logic

• Alignment of targets with seasonality and customer potential

This replaced static targets with a flexible, data-driven approach.

Target Adherence & Margin Monitoring

Built-in controls enabled continuous monitoring of:

• Actuals vs. targets at customer and monthly level

• Margin performance alongside revenue achievement

• Cost overruns or margin erosion linked to specific clients

This allowed early intervention when growth deviated from plan or profitability thresholds.

Key Deliverables

• Cost-to-Serve Model with direct and indirect cost allocation

• Financial Performance Scorecard integrating revenue, margin, and cost views

• Dynamic Sales Targeting Framework with client- and month-level cascading

• Performance Monitoring Dashboards for target adherence and margin control

Business Impact

Improved Profitability Transparency

Leadership gained clear visibility into which customers and segments generated sustainable value.

Disciplined Growth Management

Sales growth was evaluated not only on revenue achievement but on margin quality and cost-to-serve impact.

Stronger Accountability

Cascaded targets and continuous monitoring improved ownership at customer and commercial team levels.

Faster, Better Decisions

The scorecard enabled timely corrective actions on pricing, customer focus, and cost management throughout the year.

Deliverable Excerpts (Not Exhaustive)