What are Direct Selling Costs?

Direct selling costs include any expenditures made to secure a specific customer order. It is useful to track these expenditures in order to determine the profitability of individual customers. This analysis may convince managers to drop selected customers that are demonstrably unprofitable.

Direct selling costs do not include administrative expenses, facility costs, rent, or supervisory costs.

Examples of Direct Selling Costs

Here are different types of direct selling costs:

Sales commissions. Payments made to sales representatives or agents as a percentage of the revenue from a completed sale. These costs are directly tied to securing customer orders and are typically recognized when the related revenue is earned.
Advertising and promotions for specific sales. Costs incurred for targeted marketing campaigns, such as digital ads, direct mail, or event sponsorships, aimed at acquiring specific customers. These expenses are directly linked to generating immediate sales rather than general brand awareness.
Travel and entertainment for sales purposes. Expenses related to sales representatives traveling to meet clients, such as airfare, hotel stays, meals, and client entertainment. These costs are incurred specifically to close deals or maintain key customer relationships.
Sales employee salaries (direct sales staff). Wages and salaries paid to employees whose primary role is generating sales, such as field sales representatives or account executives. Unlike commissions, these are fixed costs but still considered direct selling costs if linked to securing orders.
Proposal and bidding costs. Expenses associated with preparing customized sales proposals, bids, and presentations for potential clients. This includes document preparation, legal review, and consulting fees necessary to win contracts.
Customer-specific discounts and rebates. Price reductions or cashback incentives offered to secure a specific sale or retain a high-value customer. These costs directly impact revenue by reducing the final selling price for an individual transaction.
Sample and demonstration costs. Expenses related to providing free product samples, test units, or live demonstrations to potential customers. These costs help persuade buyers and are directly linked to securing orders.
Lead generation and prospecting costs. Payments for services like purchasing targeted sales leads, telemarketing campaigns, or cold outreach efforts. These costs are incurred with the intent of converting prospects into paying customers.
Contract negotiation and closing costs. Legal and administrative costs involved in finalizing sales contracts, such as attorney fees or document processing charges. These expenses are directly related to securing customer agreements.
Shipping and handling for customer-specific orders. Costs incurred to deliver products or materials required to close a sale, such as expedited shipping or custom packaging. These costs are directly attributable to fulfilling a specific customer order.