Distribution is a margin business. Not a high-margin business — a margin business, where 1% of gross margin is the difference between a profitable year and a break-even year, and 3% is the difference between a business that generates meaningful owner income and one that is treading water.
Leakage Point 1: Manual Quoting Errors
The error rate on manually calculated quotes in distribution operations runs 3–8% of line items. Most errors favor the buyer — the rep underquotes because they rounded down, applied the wrong pricing tier, or forgot a recent cost increase. On a $5M distributor with 18% gross margin, quoting errors can run $50,000–$100,000 per year. The fix: pricing locked in the ordering system, applied automatically when an account places an order, not overridable without a documented approval.
Leakage Point 2: Rep Discounting Without Approval
In most distribution operations, it is common to find that 20–30% of the account base is on informal pricing that is 3–7% below the standard pricing schedule — because of field discounts that were never reviewed and never corrected. An initial discount becomes the permanent price.
Leakage Point 3: Rebates Not Captured
A $5M distributor buying from 15–20 suppliers, with an average rebate structure of 1.5% on qualifying purchases, has $75,000–$100,000 in annual rebates available. Distributors who systematically track and capture rebates capture 85–95% of that. Distributors who track it informally capture 40–60%. The gap is $30,000–$50,000 per year in margin that is contractually owed but never collected.