Fix the comparison boundary before calculating
Records and assumptions to align
- Define the product, customer segment, territory/channel boundary and period. (not complete)
- Reconcile direct price, trade price, producer cost and distributor-responsibility costs. (not complete)
- Identify which party owns inventory, freight, selling, support, returns, credit and warranty work. (not complete)
- Separate incremental distributor orders from orders that would otherwise be direct. (not complete)
- Map invoice, payout, credit-note and inventory cash dates for both routes. (not complete)
| Field | Required unit | Preferred evidence |
|---|---|---|
| producer net revenue | CU/order or CU/period | current price list, invoice and credit record |
| producer-owned channel costs | CU/order or CU/period | contract and operating records |
| displaced direct contribution | CU/period | observed overlap or labelled sensitivity |
Build a reproducible scenario
producer contribution/channel = producer net revenue - product/landed cost - producer-owned channel costs; combined contribution = direct contribution + distributor contribution - displaced direct contribution
- producer net revenue
- Direct collected price or trade revenue retained by the producer (CU/order or CU/period) — current price list, invoice and credit record
- producer-owned channel costs
- Selling, fulfilment, support, return and credit costs still borne by the producer (CU/order or CU/period) — contract and operating records
- displaced direct contribution
- Contribution from direct orders explicitly assumed to move to the distributor route (CU/period) — observed overlap or labelled sensitivity
Do not call all distributor sales incremental. Keep distributor margin, producer contribution and end-customer price as separate measures.
Fictional 100-order channel scenario
The example tests producer economics only; it does not set a resale price.
| Case | Declared inputs | Substitution | Result |
|---|---|---|---|
| Direct contribution/order | 100 net revenue; 45 product; 20 direct selling/fulfilment/support | 100 - 45 - 20 | 35 CU/order |
| Distributor contribution/order | 72 trade revenue; 45 product; 8 producer-owned channel cost | 72 - 45 - 8 | 19 CU/order |
| No-overlap combined case | 70 direct orders × 35; 30 incremental distributor orders × 19 | 2,450 + 570 | 3,020 CU |
| Ten direct orders displaced | 2,450 direct baseline + 570 distributor - 10 × 35 displaced | 3,020 - 350 | 2,670 CU |
Stress-test the uncertain inputs
| Variable | Lower case | Higher case | What it tests |
|---|---|---|---|
| Direct-order displacement | Little observed overlap | More orders migrate | Tests cannibalisation |
| Responsibilities transferred | Producer retains support/returns | Distributor performs more work | Tests whether the margin transfer buys economic service |
| Credit and inventory timing | Earlier receipt/lower stock | Longer terms/more stock | Tests cash exposure separately |
Stop and review when
- Roles and costs are not allocated to the party that actually incurs them. (not complete)
- Incremental demand is assumed without an overlap sensitivity. (not complete)
- Pricing-policy or territory terms need legal review. (not complete)
Turn the scenario into a controlled decision
- Reconcile the baseline to current records and name the evidence owner.
- Run the base case, then change one uncertain input at a time.
- Record the chosen response, approval limit, review date and stop trigger.
- Compare actual results with the original boundary before reusing the assumption.
Avoid these mistakes
- Comparing gross margins while ignoring transferred selling, support and credit work. (not complete)
- Treating distributor revenue as automatically incremental. (not complete)
- Using the producer model to prescribe the distributor’s resale price. (not complete)
Questions to resolve before approval
- Is a lower producer margin always channel conflict?
- No. Conflict concerns overlapping routes, roles and customer promises. A lower margin can compensate a distributor for real work or risk.
- Can this model set a minimum resale price?
- No. It is an internal contribution scenario, not legal or competition advice and not a pricing instruction to another business.
Methodology and source boundary
- Wholesale vs Retail Channel Margin methodology — Margin101: Product-owned producer/reseller margin separation.
- Channel Pricing Comparison methodology — Margin101: Product-owned comparable channel cost-stack boundary.
- Multi-Channel Profit Comparison methodology — Margin101: Product-owned volume-mix and contribution comparison.