A question I am asked surprisingly often – sometimes by a reseller, sometimes by a new employee, and occasionally even by vendors: »Why don’t vendors simply sell directly? That way everyone saves the distributor’s margin.«

At first glance, it sounds perfectly logical. In reality, it is not. And the reasons are very tangible – in fact, they have surprisingly little to do with the margin itself.

Let us imagine a vendor wants to serve the European market directly. Instead of dealing with a handful of distributors, it suddenly has to manage several thousand small- and medium-sized resellers. Every one of them requires a credit assessment, payment terms, invoices in local currency, a contact person who speaks their language, the occasional payment reminder – and every now and then one of them defaults altogether.

Vendors have done the math. Managing all of this can cost up to 14% in margin, whereas efficient distributors typically provide the same service for less than half of that. At this point, it is no longer a product business – it is a banking business. We absorb precisely that risk and administrative burden on behalf of the vendor. Instead of dealing with a thousand potentially unreliable debtors, the vendor has just one customer that pays on time: us.

Then there is the logistics aspect. The vendor prefers shipping full pallets to a single destination. A reseller, however, may only need three printers and a handheld of devices – and they need them tomorrow. Breaking down large shipments into individual units and dispatching them daily to hundreds of recipients is the so-called »last mile« of distribution. Vendors generally have little interest in doing this themselves. We do.
The distributor also plays a critical role in large projects. Shipping 10,000 terminals may sound straightforward enough, but by the end of the project the customer often wants twenty separate deliveries of ten cables each to different locations. Someone has to manage that complexity.

And the list goes on: local sales teams in every market, technical support, RMA processing, configuration services, bundled solutions, reseller training and enablement. A vendor’s field sales team can economically focus on major end users and large-scale projects, but it cannot afford to spend significant time supporting a reseller who purchases €8,000 worth of products per year. The numbers simply do not add up. We provide the reach needed to access the vast majority of resellers.

Another way of looking at it is this: vendors are experts at designing and building products. We are experts at bringing those products to market thousands of times over, in small quantities, on credit, across 22 countries. These are two entirely different disciplines, each demanding full attention. A vendor attempting to do both will usually struggle with one of them – often with the very thing it does best: developing products.
And of course, there is the balance sheet – arguably the most important point of all. By working through distribution, vendors remove receivables and inventory from their own balance sheets and transfer that burden to the distributor.

The distribution margin, therefore, is not a fee. It is the price paid for having someone else provide the capital, absorb the risk, manage the logistics, and execute the market coverage that the vendor would otherwise have to handle itself – only at greater cost and with less efficiency.

Anyone who asks the question about direct sales usually does so only once.
Because one simple truth remains:

»You can eliminate the middleman – but you cannot eliminate the work.«