Blog · Finance metrics and formulas · Distribution
Separate product resale margins from implementation and support costs. Follow a customer bundle from sales and supplier files through delivery labor, contribution and allocated account profit.
Value added reseller margins should separate resale products, implementation and support before combining them at customer level. A profitable hardware line does not establish whether the entire agreement pays for delivery and ongoing service. Start with recognized revenue and matched costs, then show what remains before and after shared expenses.
A value added reseller sells purchased products alongside work that helps the customer use them. The bundle can include hardware, software resale, implementation and continuing support. Each line has a different cost driver, so one blended percentage gives an incomplete explanation.
Line gross profit = Recognized line revenue − Matched product or service delivery cost
Account contribution = Total line gross profit − Other variable account costs
Contribution margin = Account contribution / Total recognized account revenue
Allocated account profit = Account contribution − Allocated shared operating expenses
Keep the company's own accounting classifications visible. The SEC income statement rule distinguishes product sales, service revenue and their corresponding costs. A management report can add detail underneath those categories while still reconciling to the ledger.
The general gross profit margin definition covers the revenue denominator. The job here is to explain the bundle: what products earned, what delivery consumed and what support left for the business.
Use a common customer ID and contract or project reference across the files. Retain the invoice-line ID so a supplier credit or contractor charge can be traced to its source. A useful working layout contains these fields:
| File | Required fields | Purpose |
|---|---|---|
| Sales export | Customer, contract, line, revenue type, recognition period, net revenue | Separate products from delivered services |
| Product cost export | Invoice line, supplier charge, freight, recorded credit | Match acquired products to sales |
| Delivery file | Contract, work date, activity, hours, cost rate | Price the implementation and support work delivered |
| Account expense file | Customer, period, commission, freight-out, other variable charge | Calculate contribution consistently |
| Shared expense schedule | Period, expense pool, allocation basis | Explain the remaining cost allocation |
For purchased merchandise, the IRS cost guidance includes invoice cost after appropriate discounts and acquisition transportation charges. Use the reconciled cost amount rather than the purchase order's headline price. The broader cost of goods sold guide explains the inventory bridge.
Use revenue recognized in the period, rather than cash collected or contract value signed. If a resale arrangement is recorded as a net fee, keep that accounting basis visible. Ask the controller to resolve any difference between gross customer billings and reported revenue before comparing accounts.
An illustrative US reseller reviews one customer's quarter. All figures are USD. Product costs already include earned supplier credits and inbound freight. Delivery uses contractors charged for actual hours, so the labor in this example varies with delivered work. Implementation uses 160 hours at $90, and support uses 80 hours at $90.
| Line | Revenue (USD) | Supplier cost (USD) | Delivery labor (USD) | Gross profit (USD) | Other variable costs (USD) | Contribution (USD) |
|---|---|---|---|---|---|---|
| Hardware | 80,000 | 68,000 | 0 | 12,000 | 1,600 | 10,400 |
| Software resale | 30,000 | 25,500 | 0 | 4,500 | 600 | 3,900 |
| Implementation | 24,000 | 0 | 14,400 | 9,600 | 600 | 9,000 |
| Support | 16,000 | 2,400 | 7,200 | 6,400 | 400 | 6,000 |
| Total | 150,000 | 95,900 | 21,600 | 32,500 | 3,200 | 29,300 |
For implementation, $24,000 − $14,400 = $9,600 gross profit; subtracting $600 leaves $9,000 contribution. Support subtracts both the third-party support charge and contractor labor: $16,000 − $2,400 − $7,200 − $400 = $6,000.
Divide each line's contribution by its revenue. Hardware and software resale each produce 13.0%; implementation and support each produce 37.5%. The account's contribution margin is $29,300 / $150,000 = 19.5%, rounded to one decimal place. Calculate on unrounded dollars throughout.
The result describes this contract and cost structure. It is not a market benchmark for resellers.
The reconciliation must rebuild revenue from every cost and profit layer:
| Reconciliation step | Amount (USD) |
|---|---|
| Supplier cost | 95,900 |
| Delivery labor | 21,600 |
| Other variable account costs | 3,200 |
| Shared operating expenses allocated to this account | 18,000 |
| Allocated account profit | 11,300 |
| Rebuilt revenue | 150,000 |
Gross margin is $32,500 / $150,000 = 21.7%. After other variable costs, contribution is $29,300; after the shared allocation, account profit is $11,300, or 7.5% of revenue. The allocation is a management assumption, so display its basis alongside the result.
Now change only implementation hours. An additional 40 contractor hours at $90 costs $3,600. Implementation contribution falls from $9,000 to $5,400, and its contribution margin falls from 37.5% to 22.5%. Total account contribution becomes $25,700, or 17.1% of unchanged revenue.
That bridge gives the service leader a concrete question: was the additional work approved, recoverable from the customer, or avoidable? Procurement owns supplier-cost disputes; service operations owns delivered hours; account management owns the commercial response. Finance owns the definitions and reconciliation.
For salaried teams, distinguish committed capacity from genuinely variable delivery spending. The contribution margin ratio guide explains that boundary. An internal hourly allocation can help assess capacity use without becoming an avoidable cash cost.
Bring a sample of your own sales, supplier-cost and delivery files to Covirage. Covirage maps the columns, and its tools compute and check product, service and customer figures; the external AI model explains the results with every figure traced to its rows. Create a free Covirage account, then set up your business and bring your own export.
See the supporting customer profitability page for the account-level business questions.
Show both the separate lines and the combined customer result. The separate view identifies product pricing or delivery problems. The combined view shows whether the complete agreement contributes enough toward shared operating expenses. Use summed profit divided by summed revenue.
Use the amount earned and recorded under the company's accounting policy, matched to the relevant products and period. Keep conditional or unapproved rebates separate from the actual result. Check whether the cost export already includes each credit before subtracting it again.
Support fees can exceed direct delivery cost while the full account still fails to cover shared expenses. Unrecorded service hours can also overstate support contribution. Compare contract revenue, delivered work, other account costs and the allocation policy before judging the customer.