Welcome back to ScaleWorks, our latest series for 3PLs and businesses ready to scale without sacrificing margin.
In this edition, we're looking at a quiet killer of profit. If your order volumes are up, yet net margin keeps slipping, the culprit is usually invisible: low-margin clients whose cost-to-serve exceeds what they pay.
If you're serious about scaling, you need to know exactly which clients are helping you grow, and which are quietly eating into your profits. That means making the difficult decision to say no to the wrong types of business, refining your sales focus, and using the right data to guide your decisions.
Here's how to spot low-margin accounts early, focus on the clients who are actually worth your warehouse space, and use account management to protect your profitability over time.
Run a Cost-to-Serve Audit
Cost-to-Serve (CTS) measures every penny spent moving, storing, and shipping a client’s orders.
To calculate it, start by pulling the basics from your WMS: pick time per order, storage footprint, handling complexity, return rates, and any bespoke requirements. Then, compare these costs against what you’re charging.
Some signals are obvious: clients with high return rates, excessive manual interventions, or unusually complex pick instructions, can be less profitable.
If your system supports it, segment clients into tiered groups; for example:
- Tier A: Reliable volume, high margin
- Watchlist: Acceptable margin, rising complexity
- Break even: High-touch, low-margin
- Red flag: Consistent loss-maker
Define Your Profitable-Client Profile
Once you've segmented your customers, it's time to build your future around the right ones.
Profitable clients tend to share common traits: predictable volumes, expanding SKU counts, and fewer surprises. This means their orders are steady, their requirements manageable, and their margin contribution healthy.
A ‘yes’ to all three marks a Tier-A account: predictable, scalable, and priced for profit. Surprisingly, this might not include your biggest clients. SKU-rich, medium-sized brands with consistent monthly demand often outperform flashier names when it comes to bottom-line impact.
Focus Sales on the Right Accounts
With a clear idea of what a good client looks like, your sales team can stop chasing the wrong ones.
Update your discovery process to screen for margin-eroding traits early. That means asking more than just “how many orders per month?” You need to know:
- Are there frequent spikes or seasonal lulls?
- How often do SKUs change or rotate?
- Are there special handling, relabelling, or kitting requirements?
This sort of vetting protects your operations from taking on complexity that doesn’t pay off. It also helps your team have better pricing conversations from day one.
For a deeper dive into refining your offer, see Your 3PL Needs a Niche. Here’s Why, and How to Do It. It's a helpful pairing with this guide.
Put the Numbers on One Dashboard
You don’t need to live in spreadsheets to keep track of margins.
Minster Edge Core captures labour, storage, and handling costs in real time, flagging any account that drops below your target margin. You can see live profitability by client, SKU, or activity, and act on it immediately.
This gives you the confidence to adjust pricing, change processes, or reassign resources without the usual delay or ambiguity.
If you're ready to stop guessing and start scaling with confidence, book a quick demo and see how it works in practice.
