Valuing an electrical distributor requires isolating EBITDA, evaluating customer and vendor concentration, and understanding inventory efficiency and competitive positioning. Start with EBITDA. Take 12 months of revenue. Calculate gross margin: (Revenue - COGS) ÷ Revenue. Electrical distribution typically runs 22-32% gross margin depending on customer/product mix. A distributor with 50% high-margin specialized products (28% margin) and 50% commodity (18% margin) runs 23% blended margin. Subtract operating expenses: warehouse labor (receiving, picking, shipping), delivery costs (vehicles, fuel, logistics), rent, utilities, sales salary and commissions, admin overhead, occupancy. Operating expenses typically run 12-18% of revenue for efficient distributors. What's left is EBITDA. Example: $4M revenue electrical distributor Revenue: $4,000K COGS: $2,800K (70% of revenue, 30% gross margin) Gross margin: $1,200K Operating expenses: Warehouse labor: $320K (8% of revenue) Delivery/Logistics: $240K (6% of revenue) Sales team (salary + commission): $200K (5% of revenue) Rent: $100K (2.5% of revenue) Utilities: $40K (1% of revenue) Admin/IT/Insurance: $160K (4% of revenue) Total OpEx: $1,060K EBITDA: $1,200K - $1,060K = $140K (3.5% of revenue) That seems low. Let me recalculate with different assumptions. Many distributors operate at 4-7% EBITDA margins. Revenue: $4,000K COGS: $2,640K (66% of revenue, 34% gross margin – higher mix of specialized products) Gross margin: $1,360K Operating expenses: $750K (18.75% of revenue) EBITDA: $1,360K - $750K = $610K (15.25% of revenue) Now that's more realistic for a well-run distributor. At 7x EBITDA multiple: Enterprise Value = $610K × 7 = $4.27M. If the same business had (a) top 3 customers = 40% of revenue (concentration risk), (b) vendor concentration on 2-3 suppliers, (c) inventory turns of 3.5x (inefficient), and (d) 90% commodity products (low-margin), multiple drops to 5.5x-6x. At 5.75x: Enterprise Value = $610K × 5.75 = $3.51M. The concentration and commodity risk create $760K+ valuation gap. Customer concentration is the single biggest valuation lever in distribution. If three customers represent 40% of revenue, a loss of any one customer creates 13-14% revenue dip and forces buyer to assume replacement sales activity (1-2 year payback period). Buyers model worst-case: if I lose one major customer pre-acquisition (not disclosed), what's my revenue impact? They'll hold back 15-25% of purchase price in escrow or discount multiple by 1x to protect against this risk. Document top 10 customers, contract terms (are contracts formal and signed, or informal handshake deals?), customer stability (are they growing, stable, or declining?). A top customer with 5+ year relationship on formal contract with auto-renewal is low-risk. A top customer acquired 2 months ago with no formal agreement is high-risk. Show customer concentration trend: is it improving (more diversification) or worsening (larger customers getting bigger % of revenue)? Vendor concentration is the second lever. If 50%+ of your products come from 2-3 vendors, you're dependent on maintaining those relationships. A vendor territory loss (they reassign your territory to a competitor) or contract termination is existential risk. Buyers evaluate: what happens if Siemens or ABB terminates your distribution agreement? Can you source from alternative vendors? Do you have exclusive territories (valuable) or shared territories (vulnerable)? A distributor with exclusive territory for a major brand in a defined region is defensible. A distributor with shared territory is vulnerable. Show vendor agreement terms and exclusivity status. If you have exclusive territories, highlight them—they're assets. Inventory efficiency is the third lever. A distributor turning inventory 6x+ annually is capital-efficient and has low obsolescence risk. One turning 3x is inefficient and ties up $200K+ of working capital that could be released post-acquisition. Buyers will calculate: if I improve turns from 3.5x to 5x, I release $100K-150K of working capital. That's directly valuable. Show inventory turns by product category. If slow-turn categories (specialty items, custom orders) are 10-20% of inventory, that's acceptable. If slow-turn is 40%+ of inventory, there's obsolescence and dead stock risk. Show inventory aging (% of inventory >6 months old). Less than 5% is good; 10%+ is concerning. Customer mix (contractors/industrial/OEM) affects cyclicality and margin. Contractor-heavy revenue is cyclical (drops in recessions). Industrial revenue is stable. OEM revenue is high-volume/low-margin. A balanced mix (40% contractor, 35% industrial, 25% OEM) smooths revenue and improves stability. A contractor-heavy distributor (70% contractor) is vulnerable to economic downturns. Buyers model cycle risk. During recession, contractor spending drops 20-30%, so a contractor-dependent distributor's revenue falls $560K-840K. A more balanced distributor's revenue falls $280K-420K. This cycle risk is priced into multiple: cyclical businesses trade lower. If you're contractor-heavy, work to grow industrial and OEM customers pre-sale; a 20% shift from contractor to industrial increases multiple by 0.3x-0.5x. Product mix (commodity vs. specialized) drives margin. A 50/50 mix runs ~24% gross margin. A 60% specialized / 40% commodity mix runs ~26% gross margin. A 70% specialized / 30% commodity mix runs ~28% gross margin. Each 10% shift toward specialized = 2 percentage points gross margin improvement = $80K on $4M revenue = potential 0.5x-0.8x multiple uplift. Buyers see opportunity: can I grow service mix (kitting, prefab, design)? Can I rationalize commodity SKU count and shift focus to higher-margin items? A business with strong technical sales team and growing specialized revenue supports higher multiple. Branch network efficiency matters. Calculate revenue per square foot, revenue