There’s a belief in distribution: if a customer stays with you a long time, they must be profitable.
The industry has reinforced this idea for decades. Market rankings reward revenue, not earnings. Sales cultures celebrate large accounts and high activity. Leaders compare themselves to competitors based on top-line numbers.
But once distributors start digging into their order data, a more complicated – and less intuitive – picture emerges.
A useful analogy:
Revenue is yardage; profit is the actual score that wins the game.
Many loyal accounts rack up plenty of yards. Orders flow, volume looks strong and relationships feel solid. But when you evaluate what those orders contribute to the bottom line, it’s not a given that they are scoring points.
Part of the challenge is emotional. Loyal customers create a psychological reward loop. Leaders equate activity with progress, where reacting all day makes you feel essential. It’s easier to celebrate full trucks and big quotes than to scrutinize the operational friction erasing margin behind the scenes.
But emotion obscures economics. Once you strip away the feeling of loyalty and look at the actual profit contribution, the gap between belief and reality becomes hard to ignore. This is where long-held assumptions begin to unravel, and the myths that shape decision-making come into view.
Myth No. 1: Big customers must be profitable.
Large customers are not always a distributor’s biggest contributors. Big accounts tend to negotiate harder, request more exceptions, and generate greater order volume, which means they multiply defects. It’s worth taking a closer look.
Myth No. 2: Long relationships equal financial health.
Long-term customers often carry legacy pricing, special terms and one-off concessions that have never been reexamined. Over time, these exceptions compound. Loyalty can make leaders hesitant to revisit arrangements that no longer reflect today’s costs, service levels or margin requirements. This is a structural problem that is baked into the relationship.
Myth No. 3: High volume equals high contribution.
High-volume customers create operational motion: more touches, more exceptions, more internal coordination. Even without legacy pricing issues, volume alone can overwhelm teams and consume disproportionate resources, turning activity into noise instead of profit. This is an execution and capacity problem.
Myth No. 4: Profitability is fixed.
Leaders can proactively manage and influence profitability. The difference between a typical distributor and a top-performing one isn’t more effort; it’s better command of the levers inside each order. When leaders stop assuming performance is predetermined and begin actively managing pricing, freight, exceptions and workflow, profitability becomes predictable and scalable.
Anecdotally, we’ve found that up to 35% to 40% of orders have some form of profit leakage, even inside well-run businesses. And high order volumes magnify what would otherwise be small defects. Loyalty doesn’t prevent these issues. A customer can appear profitable while regularly making orders that lose money.
That’s why forward-looking distributors have shifted their focus to the order as the atomic unit of value. This includes analyzing pricing inconsistencies, overrides, freight decisions, SKU-level eligibility and any manual work required to complete the order. Each order, workflow and customer interaction strengthens or weakens profitability.
When you zoom out from the order level, these patterns reveal that distributors tend to operate from one of two different mindsets. One is driven by loyalty and activity; the other by contribution and control.
The Loyalty-First Playbook vs. The Profit-First Playbook
Loyalty-first companies:
- Prioritize the top line. Revenue, order volume and “big customer” logos become the primary measures of success. These companies assume more activity means more profit, even if the economics of serving them erode margins.
- Fight fires instead of managing levers. Because teams lack visibility into where profit is won or lost, they operate reactively — chasing down order issues, overriding pricing and expediting shipments.
- Rely on gut feel instead of data. Customer value is judged by history, loyalty or intuition, not by profitability.
- Often end up with low business valuations. Inconsistent margins and operational inefficiencies drag down enterprise value.
- Struggle with fatigue and turnover. Constant firefighting creates burnout, unclear expectations and stress, leading employees to disengage or leave.
Profit-first companies:
- Know their profit levers at the order level. They understand profitability is built or lost one order at a time. By measuring pricing behavior, freight decisions, overrides and other cost drivers, they see what moves the business forward.
- Proactively adjust behavior, pricing and process. Instead of waiting for issues to surface, they refine pricing structures, tighten exceptions, eliminate outdated concessions and streamline workflows before small leaks become big ones.
- Achieve higher valuations. Predictable earnings and disciplined operations, supported by transparency into profit drivers, translate into stronger EBITDA multiples and more attractive exit opportunities.
- Build healthier, scalable organizations. Teams operate with fewer surprises, greater efficiency and stronger momentum, creating conditions for sustainable growth.
- Loyalty matters. Relationships matter. But neither guarantees a sustainable business. The distributors who outperform in the next decade will stop rewarding loyalty for its own sake and start deliberately managing profit, one order at a time.
Michael Biwer is the CEO of Cavallo.
This column originally appeared in the March/April issue of Industrial Distribution magazine. Sign up here to subscribe to ID’s Today in Industrial Distribution daily newsletter.
