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
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.
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.
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.
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.
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.
| 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.
Picking, packing, delivery, returns, credit and account admin, timed and costed with TDABC down to the order and the account.
Each customer carries product cost plus the real cost of how they buy, so net contribution replaces blended gross margin.
Accounts sort into grow, optimise, reprice and exit, with the margin impact of each move modelled before anything is touched.
Reprice and redesign first, exit last. Leading with "fire the tail" destroys revenue that could have been fixed.
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.
The Profit Check takes five minutes and no data upload. It estimates how much of your book is likely running below cost, and what repricing and redesign could put back.