The distribution cost It is the total sum of all those expenses incurred by the producer of a product to make possible the delivery from its location to the location of the end customer. Thus, for a manufacturer, it includes all those expenses incurred to make possible the delivery of the product from your production site to the customer location, be it retail, wholesaler or customer final.
An item is manufactured at the production site, say at the factory, and then stored in the warehouse for distribution to potential customers. To deliver the product from the warehouse to the customer's location, the producer may incur various expenses, including but not limited to shipping costs.
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Thus, it includes all those expenses that are necessarily incurred to make the delivery to the customer. The same is generally recovered from the customer by adding the same in the unit price of the product.
As we mentioned earlier, this is a broad term for many types of costs. Distribution costs include all costs to ship the product to end users or to the reseller.
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That is, all shipping costs at each stage (from production facility to reseller or end user) would be part of distribution costs. It could be that the manufacturer has a production facility at one location and a pick-up location for the freight forwarder at another location. The cost a business incurs in shipping goods from the production facility to the pickup destination will also be part of the distribution costs.
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In this article you will find:
What is included in the formula?
The cost of handling inventory at each stage of the shipment is also part of the distribution costs. It will include the handling charge at the production facility, pickup location, warehouse, and point of sale.
Similarly, packaging costs and distribution management costs are also part of distribution expenses. The administrative distribution cost would include the salary as well as the office expenses of the distribution manager.
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Another essential component is the cost of freight. This can take several names depending on the distance to which the company ships the products. For example, if a company produces and sells the product in one country, then the cost of freight could mean the cost of “trucking”.
If a company exports the products, then it would be “air freight or shipping cost for a container load or less than a container load. One point to keep in mind is that air freight is more expensive than via LCL. But air transport would take less time.
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In total, we can say that the distribution cost includes the shipping cost; the cost of packaging; the cost of freight; storage cost; handling costs; and distribution employee expenses.
Types
Distribution costs, also called distribution costs, are costs that are incurred to deliver your product from the production unit to the end user (your customer). Distribution cost examples
Distribution costs can refer to several different expenses, such as:
- Handling costs
- Shipping costs
- Packaging costs
- Distribution employee costs
- Freight costs
- Storage costs
If your distributor will be the one to ship a product to a retailer and that retailer sells it to the user Ultimately, all individual distribution expenses at each stage would be included in the total cost of distribution. In some cases, manufacturers will have a production unit at one location and product pick-up will be sent to another location.
Any cost to move the product from production to the collection point is also added to the total cost of distribution. There are other types of expenses that can be defined as distribution costs. A good example to use is the handling cost, these costs can include:
- Place of production
- Point of sale
- Stock
- Packaging costs
- Managerial costs
Examples of distribution costs
Freight cost
Freight cost refers to the transportation costs incurred to transfer the product from the manufacturer's location to the customer's location. It may be incurred by the customer himself or perhaps incurred first by the manufacturer and then recovered from the customer by including the customer in the price of the product.
Storage cost
The products, once manufactured, are kept for storage in the warehouse until they are sold to the customer. A manufacturer incurs expenses related to the storage of products in the warehouse, such as warehouse rental, which is part of the cost of distribution.
Product handling cost
It includes the costs related to the maintenance of the products stored in the warehouse. It will consist of all those expenses incurred to maintain the quality of the product and keep it in good condition.
Storage cost
The products, once manufactured, are kept for storage in the warehouse until they are sold to the customer. A manufacturer incurs expenses related to the storage of products in the warehouse, such as warehouse rental, which is part of the cost of distribution.
Product handling cost
It includes the costs related to the maintenance of the products stored in the warehouse. It will consist of all those expenses incurred to maintain the quality of the product and keep it in good condition.
Direct selling expenses
A manufacturer may incur expenses directly related to the sale of the product or to attract customers to purchase the products. Examples of such expenses include a salary of the marketing staff (only that is involved in the targeting of sales to the customer), training costs, office expenses necessary for sales, etc.
Advertising expenses
Advertising costs are also part of the distribution costs. Such a cost helps a manufacturer, especially to develop its presence in new areas. Examples may include amounts spent on advertisements made through billboards, newspapers, media channels, etc.
Management staff cost
Apart from these costs, this can also include other expenses such as the cost of the administrative staff involved in managing the warehouse, the cost of packing, etc.
