Where a distributor's margin actually goes

Distribution is a thin-margin business run at volume. That combination has an unpleasant property: a loss too small to notice on any single bill is large enough to matter across a month, and none of the five leaks below appear anywhere in your billing software as a loss. They appear as slightly lower sales, slightly higher purchases, and a bank balance that does not match the month you thought you had.

None of this is about dishonesty. Most of it is ordinary people making reasonable decisions at a counter with no way to write them down.

1. The discount given at the counter

A shopkeeper argues for two rupees off a case. The salesman, standing there, wanting the order, gives it. He is probably right to. The problem is that the bill is then written at the price he agreed, and nothing anywhere records that this shop pays two rupees less than the rate card.

By month end the effect is invisible: revenue is simply lower than it should have been, spread across hundreds of bills, and no report shows a line called “discounts” because none was ever entered.

How to see it: take one fast-moving SKU and compare the rate on every bill for a week against your list price. If the prices differ, you have found the leak — and you have also found out which salesmen and which shops it concentrates in, which is more useful than the total.

2. Free goods nobody recorded

Schemes are normal: buy ten, get one. The leak is not the scheme. It is the piece given outside it — the extra packet to close an argument, the replacement for something the shopkeeper says was bad, the goodwill item for a good customer.

These leave the van as stock and arrive at the shop as nothing. Your stock count knows they went. Your sales figure does not know why. The gap is usually written off as “shortage” at the end of the month, which is a word for not knowing.

How to see it: for one week, insist every free piece is written on the bill as a free line at zero value. Nobody is being blamed; you are counting. At the end of the week you will have a number, and it is usually the largest of the five.

One piece a day, at ₹40, from one salesman, is about ₹1,200 in a month. Six salesmen doing the same is more than most distributors spend on software in a year.

That is arithmetic, not a claim about your business — put your own numbers in the leak calculator and see what falls out.

3. Damage and expiry that was never claimed

A case is crushed. A carton passes its date at the back of the godown. The shopkeeper returns something broken and the salesman takes it back on the spot, because arguing costs more than the packet.

Two losses follow. The obvious one is the goods. The expensive one is the claim you did not file, because most damage and near-expiry stock is claimable from the company — but only with the paperwork, and only inside the window. Damage that lives in a corner of the godown until somebody clears it out is a claim you paid for and threw away.

How to see it: write down every damaged or expired unit on the day it is found, with the reason and the batch. A month of that tells you both what it is costing you and what is claimable. It also tells you whether the damage is happening in transit, in the godown, or at the shop — three different problems with three different fixes.

4. Stock that came back and was never counted

This is the one that only exists in van sales. Twelve cases go out. Nine are sold. Three come back — and go back onto the rack without being counted against what left in the morning.

Do that daily and your godown figure drifts from reality by a little every day. Within a couple of months, the stock report is something everyone has quietly stopped trusting, and ordering goes back to being done by eye. The cost is not just the missing units; it is that you can no longer tell whether units are missing at all.

How to see it: pick one vehicle and one day. Record what was loaded, in units. At the end of the day, count what comes back and compare: loaded minus sold should equal returned. Do it for a week on one van before rolling it out. The first day’s difference is usually a surprise, and it is almost never theft — it is uncounted free goods and damage from the two sections above, finally showing up somewhere.

5. Credit that ages quietly

Every distributor knows who owes them money. Fewer can say how long it has been owed, and that is where the loss is. Money outstanding for ninety days is not a receivable in any useful sense; it is a discount you have not admitted to yet, funded by your own working capital.

The mechanism is always the same. A shop is behind. The salesman visits anyway, because he is judged on sales. He bills again, because refusing is a confrontation. The balance grows to a point where the shopkeeper stops engaging, and now there is a real dispute over an amount nobody can reconstruct.

How to see it: list outstanding balances by shop in age buckets — up to thirty days, thirty to sixty, sixty to ninety, beyond ninety. You do not need software for this; one afternoon with the ledger is enough. The beyond-ninety column is the number that matters, and the rule that follows from it is simple: a shop in that column does not get more goods until something is paid.

What to actually do this month

Do not attempt all five. Pick the two that felt most familiar while reading and measure only those, for four weeks, on one salesman or one van. The point of the exercise is a number, because an argument about whether free goods are a problem ends the moment there is a figure on the table.

1. Week one: count. Change nothing else.
2. Week two: show the number to the people it came from. Not as an accusation — as a measurement they helped produce.
3. Weeks three and four: one rule per leak. Free goods go on the bill as free lines. Damage gets written down the day it is found. Nothing leaves for a shop beyond ninety days.

Then compare. Distributors who do this usually find the second month recovers more than the exercise cost, and — more useful long-term — they now have a process that keeps producing the number.

The honest limit

Software does not fix any of this by itself. If damaged stock is never reported, no system can count it; a field left blank is a field left blank. What software does is make reporting take four seconds instead of a phone call, and then add it up without anyone having to remember to.

That is what Mulberry Sales does with these five: free lines are recorded on the bill, damage is written off against cost, van loading and returns are counted in units, and the day-end figure is revenue minus what it actually cost you — not revenue minus what you meant to spend. If the process is not followed, it will simply show you an honest number about a process that is not being followed, which is still more than you had.

Related reading: beat planning for a small distributor, and van sales or pre-sales.