# Distribution Channel Margin Calculator for a Startup

This distribution channel margin calculator can be used to analyse the margin at each stage of the distribution process. The calculator allows for up to four stages, manufacturer, distributor, wholesaler, and retailer.

The margin at any stage is simply the difference between the selling price and the cost.

Margin = Selling price – Cost

Further details of the calculation of product margin can be found in our gross margin tutorial.

It is important for any startup business to understand how the total margin made on a product from manufacturer to consumer is divided between the various distribution channel partners.

Direct channels of distribution normally have a higher profit margin but distribution channel management can be expensive and difficult to organize and operate. Indirect channels allow rapid expansion of the business, are cheaper to maintain, but offer lower profit margins, as with each intermediary a price increase and a margin needs to be allowed for.

## Using the Distribution Channel Margin Calculator

The purpose of this distribution channel margin calculator is to calculate the margin for each partner in the distribution process. This free Excel calculator is available for download below and is used as follows:

### Enter the Manufacturing Cost

Enter the unit cost to manufacture the product. The product cost normally includes the cost of materials, labor and allocated overheads. Our
manufacturing gross margin calculator is available to help calculate the unit product cost if necessary.

### Enter the Cost Multipliers

Enter the cost multiplier for each of the stages in the distribution channel. If a stage is not being used, for example if there is no distributor, then simply enter 1.00 as the cost multiplier and the calculator will not allocate a margin to that partner channel.

The cost multiplier is the multiple applied to the cost of a product to calculate the selling price.

Selling price = Cost x Cost Multiplier

#### Cost Multiplier Example

For example if a product is manufactured for a cost of 10.00 and a cost multiplier of 1.25 is applied, then the product will be sold to the next partner in the distribution channel (distributor) for 12.50 (10.00 x 1.25).

The distributor now has a cost of 12.50 and applies their own cost multiplier of say 1.33 giving a price of 16.63 (12.50 x 1.33) to the next partner in the chain (wholesaler).

The process is repeated with the wholesaler applying a multiplier of 1.43 to its cost of 16.63 resulting in a price of 23.77 (16.63 x 1.43) to the retailer.

Finally the retailer applies its own multiplier of 2.50 to its cost of 23.77 giving a final price to the consumer of 59.43 (23.77 x 2.50)

At each stage in the distribution channel the calculator calculates the price at which the product is sold to the next partner in the channel and the margin achieved. In addition the calculator shows the % margin, and % markup for each channel partner.

Further details on % margin and % markup are available in our markup and margin tutorial. The formulas used to calculate each are shown below.

% Markup = Margin / Cost
% Margin = Margin / Price

## Channel Margin Analysis

The distribution channel margin calculator highlights the total margin for the product which is the difference between the price to the consumer and the manufactured cost, and shows in the form of a graph how this is distributed among the four channel partners.