Distribution cost

These are all the costs inherent in order tracking, inventory management, and transportation activities, including those incurred during the last mile, for example. They have a direct impact on the company's sales markup.

More concretely, distribution costs include distribution expenses and sales expenses for each product.

Distribution costs are made up of two different kinds of costs:

• Direct costs: i.e., all costs that can be allocated to a single product, such as advertising and marketing costs, transport costs, personnel costs, etc.
• Indirect costs: i.e., all costs that are not linked to a specific product, but to distribution as a whole. These are generally the most important expenses, which evolve in proportion to the number of goods sold and the quantity of orders.

Distribution cost can be studied on several levels. While it can be assessed globally, it can also be established by the following:

• Distribution stage: in this case, distribution cost can be assessed at the pre-sales stage (advertising costs, market research, participation in trade fairs, etc.) or at the post-sales stage (delivery, invoicing, after-sales service, etc.).
• Geographical area: distribution cost may vary according to where the product is sold. This calculation can be relevant when transport costs are not the same from one region to another.
• Product or order: in this case, it’s used to determine the cost of each item or sale.
• Distribution channel: distribution cost can vary depending on if the product is distributed by wholesalers, department stores, or retailers. The conditions negotiated are generally not the same.

A business can work on reducing distribution cost, therefore boosting its bottom line, by improving the efficiency of its supply chain, which can in turn help to optimize its order cycle and increase customer satisfaction.