Pricing and Profit Margins in Distribution

List minus a multiplier is how new houses underprice the first twenty doors. Landed cost is supplier invoice + inbound freight + duties + broker + shrink assumption + the cost of money for the days the product sits. If a case is $24.00 FOB, inbound allocates $1.10, shrink 0.8%, and you sit on it 40 days at an 8% cost of capital, you are not looking at a $24 floor.

Worked case. Invoice $24.00, inbound $1.10, shrink $0.20, capital $0.21 → landed $25.51. You sell at $32.80 (22% off sell, or 28.4% off sell depending how you quote). Gross is $7.29. Outbound LTL allocated $2.40, pick/pack $0.85, expected return 1.2% ($0.39), and a 1% shortage reserve ($0.33) leaves $3.32 contribution before sales pay and occupancy. That is the number the quote should defend, not the 22% 'margin' on the screen.

The SBA pricing guide will talk about value and competitors. Fine. In wholesale the competitor already has a truck. Your job is to know the floor so a 2-point give to win a bid does not put you under contribution.

A $900 drop once a week on a dense route and a $220 drop twice a week on a thin route are not the same customer at the same multiplier. Fuel, driver minutes, and the second stop's detention live in the second door. If you do not price delivery — minimum order, freight table, or a delivered-price matrix by zone — the small urgent door will look loyal and lose money.

Build three corridors: delivered on-route (price includes the truck if they hit a $350 minimum), pickup or will-call (50–100 bps tighter), and off-route or expedite (freight at cost plus a handling add). Publish the minimum. The buyer who needs a $90 emergency will pay the add or they will train you to be their free courier.

Payment terms are a price. Net 45 versus Net 10 at 8% cost of capital on a $20,000 average balance is about $155 a month, or $1,860 a year, before collection labor. Either put a 1% 10-day discount on the invoice or raise the delivered price. Do not give terms because the last vendor did.

If you are authorized on a branded line, MAP is not optional decoration. A door that advertised $4 under MAP last weekend can cost you the line. Write the enforcement: warning, loss of promotional buys, then loss of the line. Have counsel read the clause. The FTC page on supply-chain dealings is the public starting point; it is not your dealer agreement.

Retailer chargebacks — shortage, labeling, late appointment, ASN miss — are a price reduction you invoice yourself. A 1.8% chargeback rate on a $1.2 million grocery banner is $21,600 a year. Assign an owner who disputes inside the portal window. Uncontested claims teach the retailer your invoice is a suggestion.

Co-op and bill-backs only count when collected. Accrue them, age them, and stop quoting a 24% deal that becomes 19% when the 5% accrual never arrives. SPIFFs that you fund without a manufacturer check are a discount with extra steps. If you cannot point to the check or the deduction on the supplier statement, it is your margin.

Volume without a commitment is a story. Tie the break to a quarterly minimum you can audit, prepaid freight above a weight, EDI 850/810, or 10-day pay. Write the give as a line on the invoice so it can be removed when the behavior stops. Handshake 'we'll look after you' is how a book averages 3 points below plan.

Give the desk a ladder they do not need a VP to use: 0–1 point for case-pack or prepaid freight, 2 points for a signed quarterly minimum, anything below that is a written exception with an expiry. If every quote is an exception, you do not have a price list.

Door 184 does $102,000 a year at a reported 19% gross. Inbound allocation was never applied to their mix, they get twice-weekly specials under the $275 minimum, they pay in 51 days, and last year they charged back $4,100 in shorts and label claims you never fought. Restate: landed gross closer to 15%, delivery $6,800, capital on the receivable ~$1,100, chargebacks $4,100. Contribution before sales pay is thin enough that the door is a logo, not a living.

Fix in this order: enforce the minimum or add a delivery fee, move them to a single standing day, put them on credit watch at 40 days, and dispute the next claim inside the window. If they leave, you lost a busy invoice. If they stay, you may have found $8,000. Do this review on the top 25 doors by sales and the bottom 15 by contribution — they are often not the same list.

The IRS treatment of discounts and allowances in Publication 334 is dry and useful when you start booking bill-backs and co-op as income you have not collected. Accrue what you can support; do not manage the P&L on hoped-for program money.

If the book is 3 points below plan, do not send a blast. Pick the 20 doors that are below contribution, show them their drop-size and terms math, and give a 30-day path: hit the minimum, accept the freight table, or keep the old price on a smaller standing order. Some will leave. That is the point.

Watch leakage weekly: exception prices still open after expiry, freight billed at cost on off-route drops, and returns credited at full sell when the item came back shopworn. Those three lines will find more money than a new multiplier on the A items.

A single multiplier across a 120-mile ring assumes diesel is free. Build delivered zones off your actual stops: Zone 1 (on existing rings) includes freight above a minimum; Zone 2 adds a published per-case or per-stop add; Zone 3 is collect or a hard no. If a hunter can override zone from the car, you do not have a matrix.

Private label looks like 8 extra points until you fund artwork, a 2,500-case MOQ, and 90 days of a flavor nobody wanted. Price private label off the same landed-plus-serve floor, then add a risk add for the first two turns. If the brand will not take back unsold, your floor is higher than the national brand sitting next to it — print that on the quote so sales cannot pretend otherwise.

Cube and weight break quotes. A $31.00 case that is 0.8 cubic feet and 6 lb ships differently than a $31.00 case that is 2.1 cubes and 28 lb. If you sell both on the same delivered multiplier, the light one subsidizes the brick. Dim-weight from the parcel carriers will teach you this if LTL has not already. Put a cube flag on the 20 worst offenders.

Not every hold is smart. If a dense Thursday ring will lose three doors because a regional undercut you by 2 points on a commodity, run the contribution on the ring, not the SKU. Losing $1,800 of weekly GP$ to save 80 bps of pride is a bad hold. Give the 2 points on that SKU with an expiry and a minimum, and take it back when the regional is late — they usually are.

Write the exception with a date. Permanent 'strategic' pricing is how a book sinks a point a year. Review exceptions older than 90 days in the same meeting as aged accruals. If the door no longer hits the minimum that bought the give, the give dies.

Document the competitive invoice when you can. A photo of a competitor's pick ticket is worth more than 'they're cheaper.' Sometimes they are cheaper because they are shorting the case or shipping a different pack. Sales that cannot produce the artifact do not get the point.

Bracket pricing (case / layer / pallet) only works if the warehouse can pick those units without breaking the case and eating the give. A pallet price on an item you will pick as 14 loose cases is a gift. Lock pallet prices to a ship-as-pallet flag. If the flag is off, the price is off.

Supplier rebates that require a year-end hurdle should not be in the everyday sell price. If you miss the hurdle you gave away money you will not get back. Accrue conservatively — 60–70% of the advertised rebate — until July tells you the pace. Houses that price as if the 4% back-end is cash in January spend April explaining the miss.

Age the price file. Any exception older than 90 days, any cost older than the last supplier increase, any MAP that the brand updated and you did not. A quarterly cost-roll that sales hears about on the street first is how you fund a weekend of emergency quotes. Give sales 5 days of notice and a one-page list of the 30 SKUs that move. Silence is not a strategy.