The estimator multiplies four numbers together. This is what all four mean, where the benchmarks came from, and why the write-off matters most in the year you can least afford it. Read the last section first if you are short on time — it is the seven columns that decide whether any of this can name a case in your own book.
On a $6,000,000 book: $1,560,000 earned · $312,000 in exception at any moment · $37,440 written off every year
Total commission paid to reps divided by total billed procedure value, across every vendor line. It is blended because almost no distributorship pays a single rate — ortho implants, biologics, trauma and capital all carry different terms, and the mix moves every quarter. In the reference book it was $516,449 on $1,993,762, or 25.9%.
Two things move it. A heavy biologics quarter pulls it up. Buy-and-resell lines pull it down and make the shop look more efficient than it is, because on those the margin lives in the spread rather than in a commission line — so a low blended rate is not automatically good news.
The case shipped, was implanted and was billed — and at the moment of billing there was no valid purchase order on file against it. An exception is not a loss. Most of them resolve. It is the population that losses come out of, which is why it is worth measuring separately from the write-off itself.
In practice it happens five ways:
The 20% benchmark is deliberately conservative. The reference book ran 34.7% — 210 of 606 cases in a single quarter. That shop was worse than typical, which is what made it worth modelling.
Resolution does not decay smoothly — it falls off a shelf. Inside thirty days most exceptions clear on one phone call, because everyone involved still remembers the case. Past a hundred and twenty days the surgeon has done two hundred more, the rep may have moved on, and the materials manager is being asked to authorise payment for an operation nobody in the building can independently confirm the terms of.
At that point it stops being a billing question and becomes an argument about memory, and those are not won. 12% is the residue — the share that ages past recovery.
| Ten-year model, base case | Year 1 | Year 10 |
|---|---|---|
| Commission earned | $1,320,127 | $3,713,318 |
| Cases in PO exception | 308 | 725 |
| Written off, never collected | $31,683 | $89,120 |
| Share of that year's EBITDA | 66.4% | 16.1% |
| Ten-year total written off | $675,786 | |
The dollar figure grows and the share falls, because once fixed costs are covered EBITDA grows faster than case volume does. That fall is the trap. It makes the problem look like it is solving itself, and it never reaches zero — it just stops being the largest number on the page.
Year one is the year it matters. At the exact point a distributorship can least afford it — reps still ramping, instrument sets bought, cash tight — the commission quietly written off is two thirds of the entire profit. No report most owners have will show it, because revenue-per-rep counts a case the moment it is billed and never looks back.
What it is worth to fix. Recovering half adds roughly $44,560 to terminal-year EBITDA. At a 4.5× multiple that is $199,304 of enterprise value — which is the number that matters if you are being valued for sale, refinancing, or bringing on a partner. It is also the cheapest enterprise value in the business, because you already earned it.
Seven columns, one row per case, twelve months. Any format — CSV, Excel, a report your ERP already prints. Column names do not matter and half of them are always named strangely; mapping them is part of the session, not preparation for it. No patient data at any stage — none of this needs a name, an MRN or a date of birth.
| Column | What it drives | If you do not have it |
|---|---|---|
| case date | Aging buckets, and the 120-day cliff that separates recoverable from written off | Use the invoice date — close enough at this resolution |
| facility | Rolls cases up into territories and carries the overhead allocation | Nothing works below territory level |
| surgeon | Concentration risk, and which relationships the exceptions cluster behind | Optional. Only the concentration view degrades |
| vendor line | Breaks the blended rate into real per-line rates | Everything runs at one blended rate; the mix insight is lost |
| billed amountRequired | The denominator under every number in this document | Hard stop — nothing computes without it |
| PO statusRequired | The entire chase board. This is the column the whole exercise exists for | Hard stop. Even a blank-or-not-blank column works |
| rep | Per-rep statements, held pay, and contribution to the house | Plan-level P&L still works; per-rep does not |
Five of the seven degrade gracefully. Only billed amount and PO status are load-bearing, and if your system tracks cases at all it almost certainly has both.
Every number above is a rate. Twenty percent of cases hit an exception and twelve percent of those are never collected — both can be exactly true of your business, and neither one names a single case.
The write-off is not a forecasting problem. It lives in one case from March where the PO was verbally approved and never issued, one facility that changed its billing contact, one rep who left with six months of paper in his truck. A rate cannot tell you which.
That is the difference between an estimate and a list, and it is the only reason the working session exists.
The Distributorship Operating Kit is a sixty-minute working session where we open your actual export, screen shared, and load it into these models with you watching — plus the three Excel workbooks to keep afterwards, with your own book already inside them. One payment, $795.
See the kit and book the sessionBenchmark rates are derived from an anonymised 1,170-case distributorship book and are starting points, not predictions. Your rates will differ, and the session exists to replace them with yours.
This workup is a financial planning document, not accounting, tax, legal or investment advice. A write-off is an accounting judgement and a commission plan is a contract — have your CPA and your attorney review anything you act on.
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