Are those expenses related to marketing and distributing of a companys products?

What is the Distribution Cost?

Distribution cost is the total of all those expenses that the producer of a product incurs to make possible the delivery of the product from its location to the end customer’s location. Thus, for a manufacturer, it includes all those expenses incurred to make possible the product delivery from its production site to the customer’s location, whether retailer, wholesaler, or the final customer.
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What is the Distribution Cost?
Explanation
Distribution Cost Examples
Benefits of Distribution Cost
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Explanation

An item is manufactured at the production site, say factory, and is then kept at the warehouse for distribution to potential customers afterward. To deliver the product from the warehouse to the customer’s location, the producer may incur several expenses, including but not limited to shipping costs. Thus, it includes all those expenses incurred for making the delivery to the customer. The same is usually recovered from the customer by adding the same in the per-unit price of the product.

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Source: Distribution Cost (wallstreetmojo.com)

Distribution Cost Examples

#1 – Freight Cost

Freight Cost refers to the transportation expenses incurred for transferring the product from the manufacturer to the customer’s location. It can either be incurred by the customer itself or maybe first incurred by the manufacturer and then recovered from the customer by including the same in the product’s price.

#2 – Storage Cost

The products, once manufactured, are kept for storage at the warehouse until they are sold to the customer. Therefore, a manufacturer incurs expenses concerning storing the products in the warehouse, such as warehouse rent, which forms part of the distribution cost.

#3 – Product Handling Cost

It includes costs related to maintaining the products kept at the warehouse. It will consist of all those expenses incurred to maintain the quality of the product and keep them in good condition.

#4 – Direct Selling Expenses

A manufacturer may incur expenses directly by selling the product or attracting customers to buy the products. Examples of such expenses include the salary of marketing personnel (only involved in targeting customer sales), training costs, office expenses necessary for sales, etc.

#5 – Advertisement Expenses

Advertisement expenses also form part of the distribution costs. Such cost helps a manufacturer develop its presence in new areas. Examples may include amounts spent on advertisements done by hoardings, newspapers, media channels, and so on.

#6 – Managerial Personnel Cost

Apart from these costs, this may also include other expensesOther expenses comprise all the non-operating costs incurred for the supporting business operations. Such payments like rent, insurance and taxes have no direct connection with the mainstream business activities.read more such as the cost of managerial personnel involved in warehouse management, packaging cost, and so on.

Benefits of Distribution Cost

When a manufacturer develops an efficient distribution system, it can obtain a competitive edge over others. Such a manufacturer will be able to fulfill its delivery commitment to its customers in time and much quicker.
The quality of the products is improved by incurring costs such as packaging costs, quality control costs, etc.
The customers can benefit from better-quality products, and the manufacturer enjoys goodwillIn accounting, goodwill is an intangible asset that is generated when one company purchases another company for a price that is greater than the sum of the company's net identifiable assets at the time of acquisition. It is determined by subtracting the fair value of the company's net identifiable assets from the total purchase price.read more.
Customers’ trust is increased when distribution costs, such as transportation costs, are directly met by the manufacturer.

Importance

The costs incurred over a manufacturer’s distribution network help it in its customer building and customer management. It is so because the costs will keep the products look presentable and thereby enhance sales. Also, there are several distribution networks one may follow, which will help in the quicker and smooth delivery of the products. If a company engages a good distribution network, it also helps it to target specific audiences and mass audiences.

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