---
title: "Beyond Price Differences: What Else Can Distributors Earn?"
description: "Product price differences are the initial profit model for traditional distributors and a fundamental stage in their development. As market conditions change, distributor margins shrink, prompting a search for new profit models. Beyond price differences, what else can distributors earn from? One avenue is earning from manufacturers by helping them save costs, such as contracting market development tasks or recruiting sub-distributors."
author: "潘文富"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2016-07-13"
language: "en"
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---

# Beyond Price Differences: What Else Can Distributors Earn?

> Product price differences are the initial profit model for traditional distributors and a fundamental stage in their development. As market conditions change, distributor margins shrink, prompting a search for new profit models. Beyond price differences, what else can distributors earn from? One avenue is earning from manufacturers by helping them save costs, such as contracting market development tasks or recruiting sub-distributors.

Product price differences are the initial profit model for traditional distributors and a fundamental stage in their development. As market conditions change, distributor margins shrink, prompting a search for new profit models. Beyond price differences, what else can distributors earn from?

**Earning from Manufacturers**
Generally, manufacturers do not engage in reverse trade with distributors, meaning only manufacturers sell products to distributors and collect payments; we have not heard of any distributor selling products to manufacturers to earn their money. However, there is still an opportunity: distributors can earn from manufacturers by helping them save costs.

**[Opportunity] Contracting part of the manufacturer's market development tasks, developing sub-distributors for the manufacturer**
**[Profit Source] Channel fees and agency fees paid by the manufacturer**

**[Case Study] Case 1: Helping the manufacturer put up POP displays**
Distributor Zhang, based in H City, northern Anhui, primarily deals in food and beverages and has direct delivery capability to over 500 retail outlets in the urban area.

At the end of 2003, one of Zhang's upstream manufacturers launched a new fruit milk product. In the overall launch plan, the manufacturer required its local staff to put up POP displays and banners in 500 outlets in H City for at least half a month. The manufacturer's local office had six people; if all went out to put up POPs in various small and medium outlets, it would take about three days. With an average daily wage of 100 yuan per person, labor costs would be 6×3×100=1,800 yuan. Small gifts for each store averaged 4 yuan, totaling 4×500=2,000 yuan. Other vehicle and miscellaneous expenses were about 500 yuan. The execution cost of this market plan was 1,800+2,000+500=4,300 yuan. Additionally, these POPs typically stayed up for no more than five days—either blown away by wind, torn down, or covered by other manufacturers' staff. Money was spent, but the actual effect was minimal. Re-posting would double the cost.

Inspired by this, Zhang had his staff conduct a special survey of small and medium outlets in H City. The survey showed there were over 500 such outlets, each capable of effectively displaying 10 POPs and hanging two banners. After negotiations, Zhang offered each store owner about 600 yuan worth of products annually in exchange for exclusive rights to post POPs and banners, using his delivery staff to put them up during deliveries. Over 80% of outlets accepted the plan, as it meant an extra 600 yuan a year.

Zhang then approached his upstream manufacturers with the following proposal: there were over 500 small and medium outlets in H City; Zhang guaranteed POP coverage of over 80% (one per store) for each 10-day period, charging 3,000 yuan per period, with discounts for multiple posters or long-term clients. To Zhang's surprise, five of the seven major manufacturers immediately agreed, because the math was simple: it was cheaper than organizing their own staff, and more importantly, it guaranteed coverage and duration.

Zhang continued, contacting other major manufacturers. Soon, the first month's three time slots were fully booked. Zhang arranged for his staff to sign contracts with outlets and signed separate contracts with manufacturers. Zhang's profit was:

1. Revenue: 10 manufacturers × 3 times per month × 3,000 yuan = 90,000 yuan. After discounts, actual revenue was 85,000 yuan.
2. Expenses: 400 contracted outlets, averaging 50 yuan per month each, totaling 400×50=20,000 yuan. Adding bonuses for staff and additional costs for prime locations, actual expenses were 38,000 yuan, leaving a monthly profit of over 40,000 yuan.

By September of this year, Zhang had earned over 200,000 yuan in net profit from POP posting services, increased staff income, and boosted employee morale. Moreover, Zhang established connections with manufacturers he had no prior dealings with, laying a foundation for future cooperation. Most importantly, Zhang gained control over the terminal advertising space in H City, setting the stage for future profits.

**[Case Study] Case 2: Developing sub-distributors for manufacturers**
Ningbo Datong Trading Company, primarily engaged in food distribution, is well-known in Zhejiang Province's business circles. In recent years, due to the overall environment, the company's profitability has declined sharply, prompting General Manager Liu to seek new profit models. Many distributors look for new products as a growth point, and Liu was no exception. However, the more new products he took on, the lower the survival rate, and profit growth remained limited. Through frequent contact with various manufacturers, Liu stumbled upon another profit model—helping manufacturers develop sub-distributors.

Once, through an introduction, Liu met the owner of a Beijing candy factory. This factory had long coveted the Zhejiang market and had sent salespeople several times, but due to lack of local market knowledge, low product awareness in East China, and no special advertising for recruitment, they had not found any sub-distributors. After analysis, Liu felt that the factory had potential in Zhejiang, considering the product, distributor policies, market trends, and space. He signed a sub-distributor development agreement with the factory. Liu then contacted candy distributors in Hangzhou and Wenzhou to understand the characteristics of the Zhejiang candy market and distributor expectations. He then contacted the Beijing factory owner to revise the distributor policy for Zhejiang and printed promotional materials for the factory and its products.

After preparation, Liu began visiting distributors he knew and who were suitable for candy products, introducing the Beijing factory and analyzing market prospects from an experienced distributor's perspective. Being local acquaintances and providing reasonable introductions and evaluations, many distributors dropped their guard. After a round of visits, nine sizable distributors expressed initial interest. Liu compiled a list of these nine distributors' basic information and submitted it to the Beijing factory, which then sent a business manager to Zhejiang for final negotiations and confirmation. After contracts were signed, Liu collected agency fees for the first seven sub-distributors as agreed. Liu then proceeded with a second round of development. By the end of the project, Liu had developed 11 sub-distributors in Zhejiang and 3 in Fujian (near Zhejiang), earning over 80,000 yuan in service fees.

Next, Liu plans to register an independent market management consulting company to specialize in sub-distributor development for manufacturers, using advertorials and ads in relevant media to attract more manufacturers, and partnering with peers in Jiangxi and Fujian to replicate this business.

**[Model Summary]**
Distributors sit between manufacturers and terminals, serving as a link. To contract part of the manufacturer's market development, the fundamental principle is to save money for the manufacturer, requiring distributors to calculate benefits for both sides and satisfy both. More importantly, distributors must have a well-established network system and strong delivery capabilities. Whether posting POPs or delivering for manufacturers, this reflects a trend: distributors must become more specialized in their channel.

Developing sub-distributors for manufacturers requires the distributor to have local influence to persuade others. Additionally, note the following:
1. Summarize experience from developing second-tier distributors, learn professional skills from existing manufacturers' development staff, and establish your own sub-distributor development system and process.
2. Build relationships through direct visits and participation in local chamber of commerce gatherings, while collecting relevant information.
3. Manage familiar sub-distributors in tiers, maintain detailed files, and update them regularly.
4. Publicize your service of developing sub-distributors in the region, starting with familiar or cooperative manufacturers.
5. Create promotional materials and distribute them to manufacturers at gatherings.

**Earning from Peers**
It's said that "peers are enemies." One reason for declining distributor profits is intense competition among peers. So how can you earn from peers? Because you are both distributors, you can accurately grasp their internal needs—this is the fundamental reason for earning from peers.

**[Opportunity] Distributors need management improvement but lack professional external consulting services**
**[Profit Source] Training fees from peers**

**[Case Study]**
Boss Zhou from Wuhan started his business with canned beverages and has grown his company significantly in recent years, gaining local influence. With more free time, Zhou began pondering business and life philosophies, developing many insights. When chatting with other distributor bosses, his unique views always earned admiration. Distributors often came to him for business advice, and some sought his opinion on new products. Over time, Zhou gained a reputation. He also streamlined his product lines to focus on eight categories from three manufacturers, reducing conflicts with other distributors, which made more distributors willing to seek his advice. Being an expert and senior figure felt good, Zhou often thought.

Through extensive exchanges with peers, Zhou realized that distributors needed to improve their management and required external brain support. However, most domestic consulting firms served manufacturers, and none targeted distributors. Having spent over a decade in the distributor circle, Zhou had practical experience and a say. More importantly, over the past year, Zhou had provided guidance and market analysis to many distributors, helping them achieve results, and had built a certain reputation and influence—essentially doing consulting work. Why not formalize it into an industry and make money?

So Zhou created a chart-based analysis based on his exchanges with peers.

Based on the chart, Zhou had in-depth discussions with many distributors, and the vast majority needed such a mature, systematic external brain to solve problems. In terms of fees, a monthly consulting fee of 3,000 yuan was acceptable (special projects extra). Unlike outside consultants who were elusive, Zhou was local, had solid business experience of over a decade, and was considered a senior figure, making him more credible than outside consulting firms. Thus, Zhou confirmed the project's feasibility.

After confirming customer needs and acceptable pricing, Zhou quickly registered his own consulting company, led by himself, focusing on strategic planning consulting for distributors. Simpler tasks were delegated to a few subordinates who had worked with him for four or five years. He also began partnering with external consulting firms, bringing in lecturers, and purchasing industry materials. To ensure effectiveness and influence, Zhou initially accepted only projects in familiar industries and with familiar distributors to guarantee success. Within just three months, Zhou's new company earned over 200,000 yuan in basic consulting fees, over 70,000 yuan in individual project fees, and over 30,000 yuan from other special services, developing and stabilizing over 20 clients with minimal costs. Zhou plans to recruit senior personnel, gradually expand the field, and increase clients and profits.

**[Model Summary]**
In recent years, more distributors have sought external training, indicating a need for improved management and external brain support. However, for profit reasons, many consulting firms focus on manufacturers. Compared to these firms, distributors acting as "trainers" can better grasp the internal needs of local peers and are more familiar with specific market conditions, thus providing more practical guidance. But a key prerequisite for training peers is that the "trainer" and "trainee" businesses should not overlap.

*About the author: A private business owner, has managed a family distributor company for many years, concurrently serving as business manager and trainer in several manufacturing companies. Research focuses on internal management of small and medium private enterprises, with main topics including personnel management, cost control, management backend setup, and veterans entering private enterprises. Continuously breaks down over 400 topics related to private enterprise internal management, maintaining material collection and solution updates.*

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