Distributor or direct: how to decide

The margin is the visible cost, not the only one

The percentage a distributor takes is the cost everyone points to first, and it's real. But it's rarely the deciding factor on its own, because it comes bundled with a handful of less visible tradeoffs that matter just as much once a supplier is a few years into the relationship.

Pricing control shifts once a distributor is involved. The supplier usually has less say over final shelf price, since that negotiation happens between the distributor and the retailer, often without the supplier in the room at all. Retailer relationship and data go the same direction. The distributor tends to own the day-to-day contact, which means the supplier gets less direct visibility into sell-through, retailer feedback, or how the product is actually performing on shelf week to week.

Placement control follows a similar pattern. Category and shelf placement decisions increasingly sit with the distributor's relationship to the retailer, not the supplier's own preference, even when the supplier has a clear view on where the product performs best. Payment timing can also work against the supplier, since distributors typically pay on their own terms, often net 30 to 60 days or longer, which can be slower than terms a supplier could negotiate directly with a smaller number of retail accounts.

Two more costs are easy to underweight. Distributors generally expect a supplier to hit a minimum volume threshold to stay worth carrying, which can pressure a smaller supplier into production commitments before they're actually ready to scale to meet them. And for a supplier already selling direct in some channels, a distributor relationship can create pricing or account conflicts between the two, conflicts that need active management rather than assuming they'll sort themselves out on their own.

What this looks like for two different suppliers

Consider a supplier doing $2 million in annual revenue, selling into three regional grocery chains directly, with a small internal sales team already managing those relationships. Going through a distributor to expand into national accounts might mean giving up pricing control and a meaningful margin, but it also means access to shelf space this supplier has no realistic path to on their own. For this supplier, the constraint is reach, not capacity, and the distributor's margin is buying something the business genuinely can't build itself in a reasonable timeframe.

Now consider a supplier with strong national distribution already in place, but where margins have been quietly compressed by a distributor's fee structure over several years. This supplier isn't capacity-constrained anymore. The infrastructure exists. What's actually being given up is control and margin the business could plausibly manage on its own at this point. The same distributor relationship that was the right call five years ago may not be the right call today, simply because the constraint that justified it has changed.

How to actually decide

The decision comes down to comparing what it would cost to build the capability in-house against what the distributor's margin is buying in exchange, and doing that comparison honestly rather than assuming the in-house option is free.

Start by mapping what going direct would actually require. Warehousing, freight, retailer relationship management, and extending credit terms to retail accounts all cost real money and real time even when a supplier handles them directly. Price that out before comparing it to the distributor's cut. It's a common mistake to treat the distributor's margin as pure cost and the in-house alternative as free, when in practice both options have a real cost, just distributed differently.

Then check actual reach. If the retailers or regions being targeted require relationships a supplier doesn't have yet, a distributor's existing access may be worth more than the margin suggests, regardless of what the direct-cost math shows on paper.

Volume and consistency matter next. Distributors generally want suppliers who can deliver consistent volume, so if production is still inconsistent or scaling, that mismatch can be a bigger problem than the fee structure itself, since an inconsistent supplier risks losing the relationship regardless of how favourable the terms look on paper.

Control is worth weighing deliberately, not assumed away. A supplier who needs tight control over pricing, placement, or the retailer relationship, whether for brand reasons or margin reasons, should count that loss of control as a real cost, not a minor tradeoff that gets absorbed without consequence.

Finally, internal capacity is often the deciding factor in practice. A small team without dedicated sales or logistics staff frequently can't absorb what a distributor would otherwise handle, even when the math on paper favours going direct.

The actual question

There's rarely a universally right answer here, and the right answer for a given supplier can change over time as the business grows. It usually comes down to whether a supplier is capacity-constrained, in which case a distributor's infrastructure is worth the margin, or control-constrained, in which case the margin is a bigger cost than it first appears. The framework isn't about finding the cheaper option in the abstract. It's about being honest about which constraint is actually the binding one right now, and revisiting that answer as the constraint shifts.

Surch is built for suppliers working through exactly this kind of sourcing and channel decision.