The Margin You're Not Saving

The true cost of a fine-tuned sales engine is more than distributor margin

To distribute or not to distribute, that is the question. Well, actually it’s not—it’s an imperative for any business wanting liquid on lips. Today, I’m exploring a common misconception for small craft brands: that distributor margin is something you give away rather than a savvy investment.

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For most businesses I work with or advise, I prefer a distribution model. It usually means the right people with the right skills are doing the right job. While it’s not for everybody, it actually makes sense, and eventually cents, for most.

Somewhere right now, in the post EOFY clean-up, a a small distillery owner is justifying why they don’t use a distributor. They’ve got stockists, they’ll tell you. They’ve got cellar door footfall. They’re direct-to-consumer, they ship nationally, and they’ve done it all without giving their margin away to some middleman who’d only slow them down.

If they are moving their required product volumes and hitting profitability targets, try to buy the business plan, it’s surely crafted from solid gold.

The belief that running your own distribution is somehow saving your margin is one of the most expensive misconceptions in craft spirits. Not because distributors are saints. They’re businesses, and some are better than others. But the core misconception measures the wrong thing against the wrong alternative. The margin you’re not giving away isn’t landing in your pocket. It’s only giving you a stripped-down version of a sales function you can’t afford to build properly.

In a year when tariffs, freight, fuel and excise are squeezing every bottle that moves, the question of what a proper sales engine costs, and what it takes to build one with or without a distributor, matters more than ever. Because you must build one, and keep it fine-tuned no matter which model you invest in.

Most of the time, when a business says they don’t want a distributor, the underlying argument isn’t really commercial. Australasia is too geographically vast for spirits brands to maintain credible sales relationships without distribution support in one for or another. So it’s an argument about identity, control and perceived profit lines. You built this thing yourself, surely you deserve the biggest slice of the margin. I understand that, and respect it. But you have to be honest about what you’re choosing, because identity and commercial strategy aren’t the same conversation.

THE $200,000 QUESTION

What does it cost to run an effective sales function in New Zealand, one that actively manages the number of accounts required to hit your volume and revenue targets? More than most producers ever calculate.

Start with the rep on the road. A competent NZ spirits rep with real on- and off-premise relationships sits at $75,000 to $80,000 base salary. Commission at 2–10% of revenue, blended across volume and value, could add $25,000 to $30,000 on target. Vehicle, fully loaded: $15,000 per annum. Travel and accommodation across an island-and-a-half-shaped market, by road and air, is another $20,000. Samples at landed value plus trade show consumption: $10,000. Phone, laptop, CRM: $3,000. Training and industry credentials: $4,000. The rep doesn’t operate in a vacuum, so sales management, admin and reporting infrastructure load around 15% on top, adding another $25,000.

Call it $200,000 to keep the maths clean. That is what one sales seat costs you to do the job well, covering enough accounts often enough, with enough follow-through to actually drive depletions. Anything cheaper than that isn’t a discount. It’s a smaller job, fewer accounts, less coverage, weaker rotation. The number reflects the work, not an arbitrary rep cost. You get what you pay for. And think about that, if you are also the person doing the sales work for your own business.

That seat needs to return roughly twice its cost in gross profit annually to justify itself. Below that, it’s a loss. Above, it becomes a profit centre. The sell-through volume required depends on your price point, channel mix and margin structure, but it runs to multiples of revenue per rep, per year, generated from a single brand. Very few New Zealand distilleries are doing that volume from one product line.

That’s just sales. A credible annual marketing programme covering digital, PR, events, trade activation and creative runs $80,000 to $180,000. Fulfillment, 3PL and national freight add another $50,000 to $100,000 depending on how you fulfil those sales orders. Finance, admin and the systems that let you actually see what’s happening in market run $15,000 to $30,000 more. Before you pay yourself.

Doing it yourself doesn’t save the margin. If you’re doing it properly, which is synonymous with sustainably, your ‘margin’ is invested in a cost base roughly double what a distributor might charge, with none of the scale to absorb it.

This is where you have to really know the maths in your business. You need to know exactly how many cases you need to shift each month, each quarter, each year, to hit your business targets, and what it will cost to do it. The most important fine-tuning you’ll do as a producer isn’t on the stills, or even the marketing. It’s on the sales engine itself.

If you’re doing all that sales and distribution work yourself, you also need to be honest about where else it’s costing you. Every hour spent on the road is an hour you’re not spending on production planning, on cash flow, on the next product, on the people you employ. Time is often the most undercosted line item in small businesses, and it’s the one that runs (burns) out first.

Sure, the calculation shifts at different volumes. For the sub-1,000-case producer, self-distribution is often the only economically viable option, because the distributor model doesn’t start working until a brand has enough volume to share a rep seat meaningfully. So you tailor your geographic footprint, you focus on specific channels and removing friction. Bidfood is on your speeddial. Smart. For the 10,000-case-plus producer with established rotation, the conversation is about which distributor, not whether.

This piece is about the dangerous middle: producers with enough volume to be thinking about scale, too small to build a proper sales engine alone, and maybe for those too convinced of their independence to hand the work over.

WHO EATS WHAT

Where does the margin really go? You might see a gap between your wholesale price what lands on the retail shelf or the off-menu pour. The gap is built in stages, and none of those stages disappear when you skip the distributor.

Follow a craft spirit through the system. Production cost lands ex-distillery. Excise gets added, which is significant in New Zealand and paid by the producer whether or not a distributor is involved. Freight to a warehouse follows. From there, the distributor sells to the retailer at a margin that funds the sales function, logistics, trade spend and admin we’ve already costed. The retailer marks up again to shelf, taking the largest single slice in the chain. On a cocktail list, the same bottle is priced to deliver several times over pour cost. Same liquid, three different businesses, three margins stacked, and none of them existed because of the distributor.

Strip the distributor out and the retail margin doesn’t move. The on-trade markup doesn’t move. Trade activation, meaning POS, sampling, menu listings and staff education, is cost-shared when you have a distributor (the A & P line) and 100% yours when you don’t. Warehouse, freight, order desk, credit exposure, reporting all land on your balance sheet the moment you bring it in-house. And just because you’re not breaking it down on your own P&L, doesn’t mean it’s not the true cost of your sales engine.

The producer who resents the distributor’s cut is almost always looking at retail margin and trade costs that existed before the distributor was involved, and would exist without one. The frustration is real. It just isn’t aimed at the right number.

SELL-IN IS THE STARTING LINE. DEPLETIONS WIN THE REVENUE RACE.

This tiny principle separates producers who build durable spirits businesses from those who don’t. And it should be the crux of sales conversations internally as well as with a distributor.

Getting a case into a warehouse, whether via distributor or direct to retailer, is not a sale. It’s an accounting event. Getting bottles off shelves, into glasses, and into repeat orders is the actual business. The gap between those two is where most craft spirits brands go nowhere, and you don’t even see it happening. But it looks like dusty shoulders on a bottle sitting in retail. Shrinking re-orders. Buy-back requests.

The work that closes that gap is what a distributor’s margin pays for. Reorder cadence, velocity by SKU and channel, staff training for the people making recommendations at point of sale, menu placements, back-bar rotation, chasing the out-of-stocks no one sees because they’re not in the store at 4pm on a Thursday. None of it is glamorous, but all of it is the business.

A distributor rep has thirty seconds to pitch your brand to a buyer. If your story can’t survive that compression, with a hook, a point of difference, and a commercial reason to stock it, the cases won’t move. The brands that get pushed are the ones where reps walk in carrying a story that sells itself.

This work also underwrites valuation. When you raise capital or exit, nobody is buying your sell-in. They’re buying your depletion curve, the evidence that product keeps moving once it lands. Depletions are the revenue line that compounds, and without a depletion engine you don’t have a valuation story to tell.

SPECIALISATION: THE WORK YOU CAN’T REPLICATE

Relationships are the most valuable asset in a spirits business and you either trade on the quality of yours or the quality of your distributors. I ask clients where they want to be, behind the bar or the preferred at home choice, then send them to talk to various teams based on that trajectory. On-premise and off-premise are different sports, played by different people on different timelines. Getting a bottle onto a liquor store shelf is a different sale to getting it onto a cocktail list or a by-the-glass programme. The relationships, cadence and education required to win in each channel have almost nothing in common.

Specialist distributors exist because the work genuinely requires dedicated, full-time expertise. For a producer going direct, the question is uncomfortable. Who in your business is doing this work, at that level of specialisation, in the channels that matter most to your brand? If the answer is “I do it, between batches,” the answer is nobody. Part-time sales effort into specialist channels doesn’t produce part-time results. It usually produces nothing at all.

THE QUESTIONS BEFORE YOU GO IT ALONE

The question isn’t “how much margin can I save?”

Try asking: ”What does my business look like if I can move X volume of units a year? Do I have the sell-through volume to absorb a fully-loaded rep at $200,000-plus, returning twice their cost in gross profit? If not, who is driving depletions in every store and venue stocking my product, not in theory but this week? Am I running a credible trade activation programme, or relying on the liquid to sell itself? Can I actually see my depletions by SKU, by channel, by quarter, or am I reading sell-in figures and calling them sales? How much liquid is getting to lips each month? What’s the cost of it and what happens if I invest more?

A weak sales engine doesn’t get stronger by being owned outright, and an underfunded one doesn’t become adequate just because it’s yours.

YOU NEED A SALES ENGINE

You need a sales engine strategy. Not a distribution opinion, not a margin preference, but an actual strategy.

A distributor is one kind of sales engine. The shared, proven kind. It works because the cost of sales infrastructure is spread across a portfolio, and because the people doing the work do it full-time.

There’s a caveat that complicates every distribution conversation. A distributor amplifies brand effort, it doesn’t replace it. The top-performing craft brands in early markets are brand-led, even with excellent distribution. That means market visits every 60 to 90 days to the cities where the volume is, key account meetings personally attended, distributor reps trained by the brand so they carry the story accurately, and tastings, trade events and bartender nights hosted in person. The distributor’s implicit question is brutal and fair. If the brand isn’t pushing, why should we? Your energy drives early velocity, and without it you are one SKU on a long list, where lists get shorter every quarter. That’s why any distributor agreement needs to include marketing or A&P investment from the brand. That’s a sales engine.

The producers I recommend alternative models to understand this about themselves. They are small-volume, geographically concentrated, and channel-focused, or they have a structural asset most producers don’t. A cellar door with destination-level footfall. A single chain account that underwrites volume. A DTC business large enough to justify its own sales and marketing function. An on-premise programme anchored in relentless founder-led trade presence. Each of these can work, but each is a genuine engine, with a plan, a budget, and measurable rotation.

What doesn’t work is a smattering of tactics in the absence of a strategy. A cellar door plus a website plus a handful of stockists is not a sales engine. Many of New Zealand’s most admired small distilleries have been running on exactly this model for years, and the common feature is flat or declining revenue, invisible depletions, and teams who look increasingly tired.

If you can’t describe your sales engine in a paragraph, naming the channels, the rotation mechanism, the activation plan, and the person accountable for each, you don’t have one. What you have is inventory and hope. You’re just as likely to add complexity to a business instead of high quality sales fuel.

This is where external commercial strategy earns its keep, particularly for producers in the dangerous middle. The work doesn’t start with whether to use a distributor. It starts with what your sales engine needs to do, what it’s actually doing right now, and where the gap between the two is. That’s the diagnostic most producers aren’t set up to run on themselves, and it’s the work that needs doing before the route-to-market question can be answered honestly.

A distributor is infrastructure. The alternative is a different kind of infrastructure, and it has to be just as rigorous. Whichever way you go, you have to pick one, build it, and measure what it actually moves.