"Old Liu, are you withholding company funds?" You push open the door and confront distributor Old Liu. "Xiao Zhang, Uncle Liu is a man of ambition. How could I do such a thing as withholding funds! What happened? Sit down and let's talk slowly." Old Liu asks calmly from the sofa. "Your finance manager just told me that this period's promotional expense rate is only 16.7%, but the company clearly gave you 20% in expenses. Why is it more than 3 percentage points less? Are you withholding company funds?" "Ah, that's what this is about. I see. Xiao Zhang, your math might have been taught by the gym teacher, but I don't blame you. Today, let me explain exactly how much of the company's expenses I actually take." How much did I actually take? "Xiao Zhang, let's take this company policy as an example. Suppose you buy 10 cases of goods, and the company gives me 2 cases as freebies based on a 20% expense rate. What is the expense rate? You think it's 20%, right?" "Isn't it?" Xiao Zhang asks, puzzled. "At first glance, the 20% expense rate calculation seems fine, but the total shipment is 12 cases, of which 2 are freebies. So the expense rate should be: 2 cases / 12 cases = 16.7%. If that's hard to grasp, think of it another way: the product is originally 30 yuan per case. You buy 10 cases and get 2 free, but you have to pay for the 10 cases first to get the 2 free. So it's 300 yuan for 12 cases, which breaks down to 25 yuan per case. The discount rate per case is: 25 yuan / 30 yuan = 83.3%. So the expense I get is: 1 - 83.3% = 16.7%, not 20%." "That might be a bit confusing. Let me teach you a simple formula for converting the expense rate for a 'Buy N Get M' promotion: Xiao Zhang, using this formula, calculate the expense rates for 'Buy 9 Get 1' and 'Buy 10 Get 1' (answers at the end)." How to ship goods without losing money? "If I ship all products according to 'Buy 5 Get 1', there's no problem. But if I don't do buy-one-get-one-free and instead use these expenses for special pricing, bonuses, temporary promoters, or a mix of promotional methods, then products not shipped under 'Buy 5 Get 1' cannot be sold at the 20% expense rate; that would be a loss. For these 10 cases, if I spend according to the 20% expense rate, I'd have to cover 10 yuan out of pocket. If it's 100,000 cases, I'd have to cover 100,000 yuan. Our trading company's net profit margin is only 3%. If I spend an extra 100,000 yuan, I'd need to sell an additional 3.33 million yuan to make it back. So we can only plan promotions based on 16.7%. Even rounding, we still lose a bit. How is that withholding your expenses?" Old Liu says, slightly agitated. Choose: with-shipment or post-rebate? "Xiao Zhang, since you're here, let me teach you a bit more. Generally, most distributor bosses know this math inside out. But some situations even they can't figure out. For example, with this 'Buy 5 Get 1' promotion, the company has two discount methods: 'with-shipment bonus' or 'accumulated post-rebate'. Which would you choose?" Old Liu deliberately asks Xiao Zhang. "Isn't it the same?" Xiao Zhang answers uncertainly. "Actually, it's not the same. With-shipment bonus means the product and the freebies arrive together when you stock up; accumulated post-rebate means the manufacturer sends the freebies after a period of time. Most manufacturers use post-rebate, and many bosses think it's fine—whether it's with-shipment or post-rebate, isn't it the same quantity of freebies, just a matter of early or late delivery? But is the quantity really the same? Let me do the math for you. Still buying 10 cases, according to 'Buy 5 Get 1', let's see the difference." With-shipment bonus: Buy 10 cases, the manufacturer sends 2 cases of freebies together. Accumulated post-rebate: Buy 10 cases, which includes 1.67 cases of freebies, so the manufacturer returns 1.67 cases of freebies. "But the payment is 300 yuan for 10 cases. The difference of 0.33 cases of freebies increases the cost per case by 0.7 yuan." "That's simple. Can't we just agree to compensate 2 cases?" Xiao Zhang says happily. "Xiao Zhang, you're still too young and naive!" Old Liu says regretfully. "Suppose, as you say, the company compensates 2 cases. According to 'Buy 5 Get 1', the sellable product is 1.67 cases, and the freebies are 0.33 cases. 8.33 + 1.67 seems to add up to exactly 10 cases. But if you look at the decimal places, you'll find the sellable product is short by 0.004 cases. Usually, we distributor bosses round off when calculating; we don't care about a few cents. But small numbers add up over time. If it's 100,000 cases, that's a difference of 40 cases, enough to hire a temporary promoter." Can freebies always turn into expected money? "Generally, policies have conditions, but I'm not worried about meeting them. Suppose I get all the policy benefits exactly as promised. Can I then rest easy?" Old Liu asks Xiao Zhang. "How do you sell the freebies?" Xiao Zhang says. "You're learning. Exactly. After getting the freebies, how do you sell them? At what price? How much do you recover? Suppose the market can normally absorb 10 cases, but now to get the expenses, you actually receive 12 cases. If you pass on all the policy benefits, it's best if you can absorb exactly 12 cases. But often with the 16.7% expense rate from 'Buy 5 Get 1', you can only absorb 11 cases. To absorb the remaining 1 case, you'd need to increase the discount to 25% (or even higher). Then the recovery for that last case is only 75%, making the overall expense rate 17.4%. I'd have to cover expenses out of pocket to clear this company policy. How dare I withhold expenses!" "Old Liu, you're brilliant. I'm really sorry for almost wronging you. I need to study hard when I get back and never embarrass myself again!" Xiao Zhang flatters him. "Since you've sincerely reflected, I'll give you one more saying: 'If it weren't for the pressures of life, who would become so talented?' You don't know how hard this business is!" Old Liu's face suddenly looks older and more solemn. Reference answers: 【Buy 9 Get 1】 = 1/(1+9) = 10% 【Buy 10 Get 1】 = 1/(1+10) = 9.1% Source: Weizhi (ID: gh_98f8e108c99d)