Volume amplifies every hidden cost.
Distribution runs on thin margins and high order volume, which is exactly where cost-to-serve hides best. Every extra small order, urgent delivery, return and account-admin hour is tiny on its own and enormous in aggregate, and the P&L buries all of it below the gross-margin line. We model true profit per customer, order and delivery with TDABC, which in distribution almost always finds a large minority of accounts quietly running at a loss.
Cost and Profitability Consulting · 150+ models since 2010 · TDABC
Thin margins, high volume, invisible cost.
A distributor's gross margin is often a few points, and the business makes its money on turnover. But turnover is made of orders, and orders carry cost the gross margin never sees: the small order that costs the same to pick and ship as a large one, the urgent request that breaks the route, the return, the credit, the hour on the phone reconciling an account.
Each is trivial alone. Multiply across thousands of orders a week and they become the difference between a healthy distributor and a struggling one. Because none of it sits above the gross-margin line, the loss-making accounts look like good volume, and the sales team is rewarded for winning more of them.
EVERY CUSTOMER, BY SIZE AND TRUE MARGIN
Illustrative. Plot customers by revenue and true margin after cost to serve and a cluster of small, high-touch accounts falls below the line into loss, regardless of how much they buy.
830 of 1,951 accounts losing money.
The book looked healthy
A distributor with 1,951 active accounts and a respectable blended gross margin. On the standard reporting, the business looked solid and growth was the priority.
Cost to serve told another story
Attribute picking, delivery, returns, credit and admin to each account and 830 of the 1,951 were contributing negatively, giving back roughly 1.3 million euros of margin a year.
It was a pricing and design problem
The losses were not random. They clustered in small, frequent, urgent orders sold on terms set for large, scheduled ones, and in accounts no one had ever priced for the service they consumed.
Fixed, not fired
Minimum orders, repriced urgency, consolidated deliveries and a self-service option moved 535 accounts back above break-even, leaving 295 to handle case by case.
The same book, before and after.
| Before | After | |
|---|---|---|
| Active accounts | 1,951 | 1,951 |
| Loss-making accounts | 830 | 295 |
| Profitable accounts | 1,121 | 1,656 |
| Margin given back / year | −€1.34M | −€0.41M |
| Recovered margin | - | +€0.93M |
The "before" column is from a real engagement. The "after" is illustrative of what repricing and redesign typically recover, not a guarantee, but the order of magnitude is what a cost-to-serve model puts in reach.
LOSS-MAKING ACCOUNTS, BEFORE AND AFTER
Based on a real engagement. Of 1,951 accounts, 830 were loss-making before the model; repricing and redesigning 535 of them left 295 still in loss, to handle individually.
Profit per customer, order and delivery.
Attribute cost to serve
Picking, packing, delivery, returns, credit and account admin, timed and costed with TDABC down to the order and the account, following the same steps we use to calculate cost to serve.
Build a true P&L per account
Each customer carries product cost plus the real cost of how they buy, so net contribution replaces blended gross margin.
Rank and segment
Accounts sort into grow, optimise, reprice and exit, with the margin impact of each move modelled before anything is touched.
Act in the right order
Reprice and redesign first, exit last. Leading with "fire the tail" destroys revenue that could have been fixed.
Growth aimed at the accounts that pay.
Distributors who manage on net contribution stop rewarding volume that loses money and start steering commercial effort toward the accounts and order patterns that actually build margin. The same model sets minimum orders, surcharges and account terms, so the rules of the business finally match its economics.
The model is built on your data and handed over, so the costing stays current as the book changes.
Frequently asked questions
- Why is distribution the textbook case for cost-to-serve?
- Distribution runs on thin gross margins and high order volume. Every extra small order, urgent delivery, return and admin hour is tiny on its own and enormous in aggregate, and the P&L buries all of it below the gross-margin line. That combination is exactly where cost-to-serve hides best.
- How many accounts are usually loss-making?
- It varies, but a large minority is common. In one distributor we modelled, 830 of 1,951 accounts were contributing negatively before any action, giving back roughly 1.3 million euros of margin a year.
- Do we have to fire the unprofitable customers?
- Rarely first. Most loss-making accounts are fixed by repricing small or urgent orders, setting minimum order values, consolidating deliveries or moving them to self-service. Exit is the last resort, taken with numbers on the table.
- What data do we need to start?
- Invoice-level sales, cost of goods, and the operational records behind orders, deliveries and returns. Perfect data is not a prerequisite; mapping the gaps is part of the three-week diagnostic.
Find the accounts quietly giving margin back.
The Profit Check needs no data upload. It estimates how much of your book is likely running below cost, and what repricing and redesign could put back.
- Duration
- 12 to 15 minutes
- You receive
- Score, 7 dimensions, sector benchmark
- Price
- Free, no email needed
Proof
A distributor in New Zealand. €1.335M of cost-to-serve made visible, then halved, and 830 loss-making customers brought down to 295.
Read the case study →Who you would be talking to
Miguel Guimarães, Founding Partner
Cost and profitability practitioner for 25+ years. Lectured alongside Professor Robert S. Kaplan at the CFO conference in Amsterdam (2009).
Call +351 910 313 731
