Margins, Movement, or Money on Hold? What Really Builds a Winning Distribution Business

In the world of distribution, everyone talks about margins, stock movement, and credit periods. But if you had to pick just one as the most critical, what would it be?

We recently ran a poll asking:

What’s most critical in the distribution business?

A. Margins

B. Speed of Stock Movement

C. Credit Period

The responses were diverse—and insightful. But before jumping to a conclusion, let’s look at all three factors with real-world examples.

1. Margins: The Profit Illusion?

High margins seem attractive. More margin = more profit, right?

Case Example: Electronics Distributors in Tier-1 Cities

Some large electronics distributors earn up to 15–20% margin on premium brands. But the stock remains stagnant for weeks. The longer it sits, the more working capital is blocked. Plus, tech becomes obsolete quickly—leading to discounting or dead stock.

Lesson: Margin without movement is a trap. You may be making “profit on paper,” but losing agility and cash flow.

2. Speed of Stock Movement: The Silent Multiplier

Speed is often underrated. Yet, fast movement of stock ensures cash keeps rotating and warehouses stay lean.

Case Example: FMCG Distributors

Distributors for brands like Hindustan Unilever or Parle operate on low margins (3–7%). Yet, their stock rotates 3–4 times a month. That’s a 10–15% effective monthly ROI due to rotation speed.

Lesson: Low margin + high velocity beats high margin + slow turnover. Speed is a force multiplier.

3. Credit Period: The Make-or-Break Lever

Credit is the oil in the distribution engine. But too much oil can flood the engine.

Case Example: Building Materials Sector

Distributors often offer 30 to 90 days credit to retailers and contractors. While this helps push products, it creates serious cash flow strain—especially when collections are delayed or defaulted.

Lesson: Credit terms need balance. Generous credit can win short-term sales but kill long-term sustainability if not backed by solid collection systems.

Claycan Insight: The Winning Formula

At Claycan, we’ve worked with distributors who scaled 3X in 18 months not by chasing margin but by focusing on stock aging, daily cash rotation, and credit hygiene. We helped redesign dashboards to reflect not just profit margins but:

• Stock movement speed (daily/weekly basis)
• Aging slabs beyond 30/60/90 days
• Credit utilization vs realization
• Gross Margin Return on Investment (GMROI)

Result?

More working capital freed.

Faster decision-making.

Better control on cash flow and fewer stock-outs.

Conclusion: Choose Your Driver

Margins are important. Credit is necessary.

But stock movement speed is often the invisible backbone of a sustainable distribution business.