Why Distribution Adds to the Cost of a Light Fixture and Luminaire

By Damien Sanchez

This blog post explains how traditional lighting distribution adds to the cost to a fixture and why Sterling Lighting’s direct-to-business, or D2B, sales model delivers more value to our customers.

Traditional Distribution Model Example

When selling through distribution, the target retail price determines what you can spend to build a light while maintaining your margin as a manufacturer.
Target MSRP: $140
Build cost: $23

1. The manufacturer builds the light for $23.

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

• Manufacturer profit before sales rep: $47 (67% margin on cost).
• Sales rep commission (10% of $70): $7.
• The manufacturer nets $40 after rep commission and the cost to build the light.

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

• Distributor profit: $70 (50% margin).

Who Makes What?

• The manufacturer invests $23 in building the fixture.
• Manufacturer nets $40 after paying rep commission (from this they must make a profit, pay employees, market etc.
• Sales rep earns $7 commission.
• The distributor earns $70 gross margin, the largest share of all three.

Distributor Advantage: Bulk Pricing

Because distributors capture the most significant margin, they can offer tiered or bulk pricing to contractors. This creates the appearance of a discount for larger orders, but in reality, it is offset by the distributor’s hefty markup. This is why distributors can afford to give volume deals that the manufacturer and sales reps cannot.

Sterling’s Direct 2 Business Model

Sterling does not sell through distribution, which eliminates the 50% distributor markup to the contractor. Instead, more of the customer’s dollar goes into the quality of the luminaire itself. This allows Sterling to build higher-performance, longer-lasting luminaires without inflating the price. We do not do bulk pricing because we are not a distributor with inflated margins. We want to deliver the most value we can to our customers, the designer-installers-contractors working in the field every day helping them grow.