Do People Still Make or Break Your Distribution Business?
Business?
Read Time 7 mins
By Frank Hurtte
Let's talk about people. Why? Because without people, distributors aren’t distributors. They’re empty buildings with aging inventory systems, a few forklifts, and a collection of office chairs that have seen better days.
When I talk with individuals looking to acquire distribution businesses, private equity, industry veterans, or even outsiders, the conversation always circles back to three things: profitability, customer relationships, and the stability of the team. Remove the last two, and the valuation drops to nearly nothing. In truth, without people, you don’t have customer relationships at all. That’s why talking about people isn’t just important; it’s essential.
Distribution has always been a people‑intensive business model. Yes, we have warehouses, inventory, credit departments, ERP systems, and fleets of vehicles. But people are the engine. For every dollar of gross margin generated, roughly sixty cents goes toward payroll. That’s nearly five times occupancy costs and triple the other operating expenses. It’s a structural reality that isn’t going away.
Today’s labor market complicates things further. Unemployment numbers look healthy, but they don’t tell the whole story. The pool of high‑quality talent—especially those who can make a meaningful impact in distribution—has been absorbed. It’s basic supply and demand. Salary expectations have climbed, particularly for technical and engineering roles. A new engineering graduate from the University of Iowa can easily command a starting salary north of sixty thousand dollars.
Our business model doesn’t leave much room for runaway payroll growth. We can’t push people costs far beyond sixty percent of gross margin and remain viable. We can’t control rising healthcare costs or benefit expenses. Productivity gains aren’t optional anymore; they’re survival tools.
Let’s explore some best practices that help build productivity inside your organization.
Experienced People Tend to Be More Productive
Research across hundreds of distributors shows that experienced people consistently outperform their less seasoned counterparts. They understand systems, shortcuts, and the unwritten rules that keep operations moving. Many bring deep industry knowledge, customer contacts, and behind‑the‑scenes relationships that help resolve issues quickly.
Retaining experienced people is critical, but only if they have the right work ethic, professional skills, and are in the right role. Poor hiring decisions don’t magically improve over time. If the last recession gave you an opportunity to clean house, good. If not, underperformers should be on improvement plans or transitioning out.
And make no mistake: your people are being watched. Recruiters and competitors are probing your defenses. Fortunately, money isn’t the only motivator. If your pay scales are competitive, the real drivers are job satisfaction, proper tools, growth opportunities, and appreciation.
Reviews Matter More Than You Think
After conducting more than one hundred exit interviews, I’m consistently surprised by how many departing employees say they haven’t received a meaningful performance review in years. Managers often point to informal conversations, but employees don’t see those as reviews.
What’s missing? A growth plan. Recognition for customer wins. Appreciation for years of service.
Managers sometimes claim reviews are too time‑consuming. They overlook the cost of replacing a seasoned employee—lost productivity, training time, and the higher salary a new hire may demand.
Hiring Errors Are Expensive
The only thing worse than losing a strong employee is hiring the wrong one. Yet many distributors still rely on informal, unstructured hiring processes.
Common mistakes include:
Unplanned interviews. Walking into an interview without a plan leads to superficial conversations. A good interview explores work habits, communication style, and team compatibility.
Skipping personality profiles. Profiles aren’t perfect, but they highlight areas worth exploring. We’ve seen red flags in profiles that saved clients from disastrous hires.
Weak reference checks. Large companies often provide minimal information. Finding mutual contacts or customer references takes effort but pays off.
Amateur background checks. I’ve seen distributors hire drivers with multiple DWI convictions simply because no one looked beyond a basic search. In one case, a distributor’s free background check missed two felony thefts that a paid search uncovered.
Best practices also recommend reviewing new hires at 30, 60, 90, and 180 days. If someone shows concerning signs early, correct them. If improvement doesn’t follow, terminate before the cost becomes permanent.
Onboarding Matters
A strong onboarding process accelerates the shift from profit drag to profit generation. Unfortunately, many distributors struggle here. If you don’t have a formal onboarding process, it’s time to build one. Your future productivity depends on it.
More to Come
For a deeper look at coaching and management practices that strengthen your team, see Part Two of this series. If your organization needs help strengthening hiring practices, building onboarding systems, or improving employee productivity, River Heights Consulting can guide you with proven, distributor‑focused strategies
TL;DR
Distribution is a people‑driven business. Payroll consumes most of your gross margin, so productivity, retention, hiring accuracy, and onboarding matter more than ever. Experienced employees drive results, structured reviews keep them engaged, and disciplined hiring prevents costly mistakes. Strong onboarding accelerates profitability.
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