01 / HVAC distributionCase study 01
HVAC distribution
More margin from every order.
Modeled annual EBITDA
+25% lift · 50% capture assumptionThe opportunity.
- Cut expedited freight.
- Rein in account discounts.
- Recover vendor cost increases.
Modeled annual EBITDA.
+395 bps of annual revenue
Findings & assumptions +
Six SKUs across Climate, Outdoor and Controls lines, six contractor accounts, 1,317 orders over 26 weeks. At 7.8% EBITDA, every point of gross margin matters: the engine sized four separate leaks worth almost 2 points of EBITDA margin in the conservative case.
- Gross margin
- 33.9%Baseline, annualized
- Conservative impact
- +198 bps$92K EBITDA / yr
- Orders below floor
- 24%153 orders under 28% GM
- Quotes stopped
- 3 of 51 blocked, 2 routed to VP
Brightline Supply: discount creep
−15.5 pp GMAverage discount jumped from 8.1% to 21.3% starting the week of Sep 21 (z = 8.9). The decomposition puts 10.4 pp of the margin drop on discounting and 3.9 pp on extra support hours.
Action: Pricing review on the account; discounts beyond the floor require VP approval.
Outdoor line: expedited freight
−8.6 pp GMFreight rose from about 3.5% to 11% of revenue on the Outdoor line from Sep 21; freight alone explains 7.5 pp of the drop.
Action: Audit carrier invoices and tighten approval of expedited shipments.
Climate line: vendor increase not passed through
$9.6K lostUnit cost rose 4% on Aug 1. List prices did not move, so 0% of the increase reached customers over the following 72 days.
Action: Pass the cost increase through to price on SKUs the optimizer holds.
What matters
In distribution, the biggest wins were operational rather than list-price changes: freight and discount leaks together are worth more than the price changes. Stopping them early matters because the engine dates when each problem began, so it can be fixed within weeks instead of found at quarter close.
Price recommendations.
Elasticity estimated per SKU from order-level price and volume, controlling for month and weekday. Five of six SKUs have room to raise price; the margin-maximizing move on SKU-110 is +10% even after losing about 18% of volume.
| SKU | Elasticity | Net price | Recommended | Volume | GM uplift / yr | Call |
|---|---|---|---|---|---|---|
| SKU-110 | 2.06 | $624.84 | $687.33 | −17.9% | $37.5K | Raise |
| SKU-300 | 1.16 | $55.73 | $61.30 | −10.5% | $12.9K | Raise |
| SKU-310 | 2.27 | $220.38 | $240.44 | −17.9% | $2.7K | Raise |
| SKU-200 | 2.78 | $137.87 | $148.20 | −18.2% | $2.6K | Raise |
| SKU-210 | 3.00 | $88.28 | $90.22 | −6.3% | $0.2K | Raise |
| SKU-100 | 0.90 | $390.77 | - | - | - | Hold |
