Wholesale distribution costs and profitability: where the money leaks

Why turnover is a misleading number

Many distributors measure success by turnover: more sales means the business is doing well. But turnover and profit are not the same thing. You can sell far more this year than last year and keep less, if the growth comes from orders that cost you more to deliver and serve than they leave you.

This article helps you see where money goes between profitable and loss-making orders. It will not contain exact figures for your business; those you have to take from your own books. The example below is entirely illustrative and is there only to show the logic.

Turnover tells you how much you sold, not how much you kept.
Two orders with the same margin can give very different profit if their size and address differ.
A large part of the money is lost in places that do not show up in the turnover figure.

A map of costs: direct and hidden

A distributor's costs fall into two groups. The first is easy to see. The second is often overlooked, and that is exactly where money disappears.

Direct: buying the goods, fuel, the driver's and warehouse wages, vehicle upkeep.
Hidden: the driver's idle time at a shop, orders picked wrongly and returned, damaged goods.
Hidden: discounts that eat the margin, and promotions that brought no extra sales.
Hidden: expired or unsold goods that tie up cash in the warehouse.
Hidden: overdue payments, and the time spent copying by hand and making phone calls.

Everyone counts the direct costs. The main source of profitability is seeing the hidden ones.

An example: the profitability of a single order (illustrative numbers)

Let us compare two orders. Every number here is invented to show the logic; the real data of your business will differ. Suppose your average margin is 20%.

Order A, ordinary: 400 ₾, near zone. The margin is 20%, so 80 ₾.
Costs on this order: delivery (driver and fuel for one stop) 25 ₾, picking and loading 8 ₾, packaging 3 ₾, and a loss from mistakes and returns of 2% of the order, so 8 ₾.
Total cost 44 ₾, so 36 ₾ is left, which is 9% of the order.
Order B, small and far: 100 ₾, far zone. The margin is 20 ₾.
Costs: delivery 35 ₾ (it is far), picking 8 ₾, packaging 3 ₾, mistakes 2 ₾, 48 ₾ in total.
Result: 20 - 48 = -28 ₾. Every such order is a 28 ₾ loss, even though it adds 100 ₾ to turnover.

Now work out the order size where profit begins. The fixed cost per order (delivery, picking, packaging) is 36 ₾ in the near zone and 46 ₾ in the far one. The margin minus the loss from mistakes is 18%. So the order size at which you stop losing money is about 200 ₾ in the near zone and about 256 ₾ in the far one.

Now add a 5% discount to order A. The margin falls to 15%, which is 60 ₾, the costs stay at 44 ₾, and what is left falls from 36 ₾ to 16 ₾, less than half. That is why you must calculate a promotion in advance.

Where money leaks most often

Each point below comes with a way to see it in your own business.

Small orders: how many are there each month and what share of turnover do they make? If there are many, delivery cost swallows their whole margin.
Far zones: how much does the driver spend on one trip and how many orders does it carry? The fewer shops in a zone, the more expensive it is.
Mistakes and returns: how many orders were corrected or cancelled because picking or loading was wrong?
Discounts: how many orders took a discount and how much did sales actually rise because of them?
Idle time: how long does the driver wait at a shop or for loading at the warehouse?
Expired and stuck stock: what sits in the warehouse until its date passes?
Receivables: which shop pays late and how much has built up?

How to measure: a few numbers once a week

Managing profitability is not a complicated financial analysis. A few simple numbers that you look at once a week and compare with each other are enough.

The average order size and how it changes.
The number of orders per trip, meaning how many shops the driver serves in one round.
Delivery cost per stop, or more simply the driver's daily cost divided by the number of stops.
The share of mistakes and returns among orders.
By zone: which zone is profitable and which is not.
Late payments: how much is owed and for how long.

The important thing is that these numbers come from one source and are not collected by hand. If orders, deliveries and amounts are kept in one place, you have these figures almost automatically.

Levers: how to improve profitability

Once you see where money leaks, there are a few simple levers to fix it. You do not have to change everything at once; one or two are enough.

A minimum order: especially for far zones, so a small order does not become a loss.
Delivery days by zone: give a far zone its own day instead of delivering a little there every day.
Grouping routes: near shops in one round and more stops per trip.
Fewer mistakes: a picking list, a double check at loading, and confirming delivery on the spot.
Promotion discipline: a time limit, a quantity limit and a calculation in advance so a discount does not erase your margin.
Selling stuck stock before its date, and ordering less of it next time.
Managing payments: call a late payer in good time and compare cash at the end of each day with that day's deliveries.

A second example: one route in numbers (illustrative)

The delivery cost per stop depends a great deal on how many stops a driver completes in a day. Here too the numbers are illustrative, and your real figures will differ.

Suppose the driver and fuel cost 300 ₾ a day.
If the driver completes 12 stops a day, each stop carries 25 ₾.
If you group the route so that the same day fits 16 stops, each stop carries 18.75 ₾.
The difference is 6.25 ₾ per stop, which is 100 ₾ a day across 16 stops, and about 2,200 ₾ a month over 22 working days for a single driver.
This money does not come from raising prices or taking from shops; it comes only from a better planned route.

The same logic works in the other direction too: if a driver completes only six stops a day, a stop costs 50 ₾ and even an average order leaves you at a loss. So the first question to ask yourself before adding a zone is: how many stops will one trip actually give me?

Money that is earned but not in your hand

Profitability is not only about sales and costs. If a shop pays late, the money is not in your hand and you have to buy new stock with your own cash. Cash on delivery greatly reduces this risk, but only if the money really is handed in fully and on time.

At the end of the day compare the cash a driver hands in with that day's deliveries, on the same day, while a difference is still easy to explain.
If a shop paid only part, write down the rest separately and keep track of its date.
A shop that is late again and again should be set apart and spoken to before the debt grows.
The money lost through late settlement is often bigger than one discount, so it deserves the same seriousness.

Strelf does not handle order money: the shop pays the company directly at delivery. The software only helps you record delivery and amounts in one place, so nothing has to be copied by hand in the evening.

How a system helps with this

Profitability is hard to count when data is scattered across different notebooks and chats. In Strelf orders, deliveries and amounts are collected in one place, so in the reports you can see how each shop and zone is performing.

In the delivery settings you choose the zones and leave out the ones where you cannot manage.
Order statuses show you where the process stalls.
Reports show who buys more and who has gone quiet.
Delivery is confirmed on the spot and the cash is compared with deliveries at the end of the day.

The software will not make the decision for you, but it clearly shows you the numbers on which to make it.

Checklist

You know how much you keep on your best-selling products.
You count the cost of an order, not only its turnover.
You know from what size an order becomes profitable in a near and in a far zone.
Your promotions have a time limit and a quantity limit and are calculated in advance.
You watch the share of mistakes and returns.
Once a week you look at a few numbers and take one concrete decision.

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