Distribution costs are any type of costs involved with the tasks of moving products from the manufacturer to the consumer. Sometimes referred to as a 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 range of distribution costs are often related to any expenses involving the transportation of finished goods from the manufacturer’s site as well as the costs of delivering the products to the buyers. In many instances, any costs incurred for storing the products between production and transport are also considered distribution costs.
One of the more common examples of distribution costs has to do with transporting the goods. Transportation costs may focus on moving the finished goods from the production site to a storage facility where the goods remain in an inventory until they are used to fill customer orders. The costs may have to do with the maintenance of equipment to arrange the transport, or if a freight line or other carrier is used for the tasks, then the cost is usually accounted for as related to distribution.
Along with transport 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 filling orders would qualify as part of the overall costs related to distribution. This is especially true if the producer absorbs costs such as warehouse rental in order to protect the finished goods until they can be shipped to a customer.
Delivery expenses are a third example of distribution costs. This includes any costs related to the actual delivery process at the customer’s end, including the use of local freight services to manage the delivery, or the costs of shipping and handling of small orders that are fulfilled using the post or some sort of courier service. In some cases, companies will consider delivery costs to be a subset of transportation costs, depending on how the accounting records are maintained for tax and other purposes.
Tracking distribution costs is just as important to the bottom line of a company as effectively tracking and managing production costs. By making sure that all processes and procedures related to the distribution of goods and services is operated with the ideal mix of efficiency and cost, the company stands to enhance the net profits realized from the operation of the company. For this reason, business owners and managers will often review distribution costs that occur both internally and due to the use of outside providers, and seek to keep those costs as low as possible without creating issues that ultimately impact the customer.