Why Distribution Adds to the Cost of a Luminaire

By Damien Sanchez

Here’s how traditional lighting distribution adds to the cost of a luminaire, and why Sterling Lighting’s direct-to-business (D2B) model puts more value into the product.

Traditional Distribution: An Example

When a manufacturer sells through distribution, the target retail price sets how much it can spend to build a light and still keep its margin. Take this example:

• Target MSRP: $140
• Build cost: $23

1. The manufacturer builds the light for $23.

2. The manufacturer sells it to the distributor at 50% of MSRP ($70).

• Manufacturer gross profit before the sales rep: $47. That’s a 67% gross margin on the $70 selling price (a 204% markup on the $23 cost).
• Sales rep commission (10% of $70): $7.
• The manufacturer keeps $40 after build cost and rep commission.

3. The distributor resells the light at the $140 MSRP.

• Distributor gross profit: $70, a 50% gross margin (a 100% markup on its cost).

Who Makes What?

• The manufacturer puts $23 into building the luminaire.
• The manufacturer keeps $40 after rep commission. From that it still has to pay employees, marketing and overhead, and make a profit.
• The sales rep earns $7.
• The distributor earns $70, the largest share of the three.

Why Distributors Can Offer Bulk Pricing

Because distributors hold the largest margin, they can offer tiered or bulk pricing to contractors. It looks like a discount on larger orders, but it comes out of that markup. That’s why distributors can offer volume deals that manufacturers and reps can’t.

Sterling’s Direct-to-Business Model

Sterling doesn’t sell through distribution, so contractors don’t pay the distributor’s share. More of each dollar goes into the luminaire itself, which lets us build higher-performance, longer-lasting luminaires without inflating the price. We don’t offer bulk pricing, because we don’t carry a distributor’s margin to discount from. Our goal is to deliver the most value we can to the designers, installers and contractors working in the field every day, and to help them grow.

Read more about why Sterling sells direct to professionals and the story of Sterling.

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About the Author: Damien Sanchez is co-founder and COO of Sterling Lighting and an experienced lighting designer, trained under Patrick Harders, LC, since 2006. He's also an entrepreneur who owns a service-based business.