Distribution costs are expenses related to moving products from the manufacturer to the consumer, including transportation, storage, and shipping charges. Tracking and managing these costs is important for a company’s profitability.
Distribution costs are any type of costs related to the tasks of moving products from the manufacturer to the consumer. Sometimes referred to as distribution expense, these types of costs are different from production costs, which have to do with the actual process of creating the goods and services that are ultimately sold to customers. The distribution cost range is often related to any expenses involved in transporting finished goods from the manufacturer’s site, as well as the costs of delivering the goods to buyers. In many cases, the costs incurred to store the products between production and transportation are also considered distribution costs.
One of the most common examples of distribution costs has to do with the transportation of goods. Transportation costs may be focused on moving finished goods from the production site to a warehousing facility where the goods remain in inventory until they are used to fill customer orders. Costs may have to do with maintaining equipment to arrange transportation, or if a freight line or other carrier is used for the tasks, then the cost is generally accounted for as related to distribution.
Along with transportation costs, storage expenses are also considered part of distribution costs. Once the goods are stored in a warehouse or other facility, all expenses related to keeping those goods safe and ready for use in order fulfillment would qualify as part of the overhead costs related to distribution. This is especially true if the producer absorbs costs such as warehouse rent to protect finished products until they can be shipped to a customer.
Shipping charges are a third example of distribution costs. This includes costs related to the actual delivery process at the customer’s end, including the use of local freight services to manage delivery, or the costs of shipping and handling for small orders that are fulfilled through the mail or some type of service. of messaging. In some cases, companies will consider delivery costs as a subset of transportation costs, depending on how accounting records are maintained for tax and other purposes.
Tracking distribution costs is just as important to a company’s bottom line as effectively tracking and managing production costs. By ensuring that all processes and procedures related to the distribution of goods and services are operated with the ideal combination of efficiency and cost, the company can improve the net profits obtained from the operation of the company. For this reason, business owners and managers often review distribution costs that occur internally and due to the use of external providers, and seek to keep those costs as low as possible without creating problems that ultimately affect the customer.
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