Reading a pocket-margin waterfall
"Gross margin" hides a lot. Two products can post the same gross margin and yet one of them quietly loses money once you account for the discount the sales rep gave, the rebate the customer earns, and the freight it took to deliver a heavy, low-value item across the country. The pocket-margin waterfall is how you see what's really left in your pocket after every leak — and it's the financial backbone of the PrimaForja distributor dataset.
The steps, top to bottom
Each line starts from the one above it and subtracts a specific, nameable leak:
- List price — the catalog price, before anything is given away.
- − Discounts — negotiated and segment discounts off list.
- − Promotions — temporary promotional price reductions.
- = Invoice (net merchandise) — what the customer is actually billed for the goods. This is the revenue number the executive KPIs and EBITDA are built on — not list, and not a figure inflated by freight or tax.
- − COGS (landed cost) — leaving gross margin.
- − Cash discounts, rebates, freight-to-serve — the off-invoice leaks that gross margin ignores — leaving pocket margin: the real per-order profit.
- → Contribution → EBITDA — subtract allocated corporate overhead (SG&A) and you arrive at operating profit.
Gross margin tells you whether the price beat the cost. Pocket margin tells you whether the deal made money. They are not the same, and the gap between them is where most distributors lose their profit.
Why "net merchandise" is the anchor
A subtle but critical modeling decision: revenue is anchored to the net merchandise line (list − discount − promo), not to the invoice total that also carries billed freight and tax. Tax is a pass-through — it never belonged to you — and billed freight is netted against the carrier cost in the cost-to-serve, so counting it as revenue would double-count. Anchoring here is what lets the CEO's revenue reconcile exactly to the sum of the order lines and to the finance dashboard. Get this wrong and every downstream margin drifts.
Reading it on the dashboard
On the CFO tab the waterfall is a literal chart: a tall bar for list price, then a descending staircase of red decrements — discount, promo, COGS, then the off-invoice leaks — landing on pocket margin and contribution. The value isn't any single number; it's the shape. A steep drop at "promotions" says you're buying revenue with margin. A steep drop at "freight-to-serve" says your cost-to-serve is eating the deal on certain products or lanes. The waterfall turns a vague "our margins are soft" into a specific, fixable line item.
Why we guard it with a test
Because so much depends on the revenue anchor, the generator asserts it on every run: invoice amount must equal list − discount − promo, to the cent. If a future change ever tried to fold freight or tax back into revenue, the build would fail rather than silently mis-stating the top line. Every metric in the methodology reference hangs off that anchor — which is exactly why it's worth protecting.
