---
title: "Dealer Profits Are Hewn with an Axe"
description: "Many dealers are overly optimistic about their gross margins, which leads to neglect of cost control. In reality, hidden costs are high, and net profits are often only 3-5 points despite gross margins of 20-30 points. To increase profitability, dealers must cut unreasonable costs, clean up unprofitable customers, employees, and suppliers, and simplify their operations."
author: "潘文富"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2016-10-21"
categories: "Dealer Operations"
language: "en"
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markdown: "https://xinjignxiao.com/en/articles/dealer-profits-are-hewn-with-an-axe-dd0af5b6.md"
original_source: "https://mp.weixin.qq.com/s/mGjmoAWuGrgnthUIzzGhzQ"
translation: "https://xinjignxiao.com/zh/articles/%E7%BB%8F%E9%94%80%E5%95%86%E7%9A%84%E5%88%A9%E6%B6%A6%E6%98%AF%E6%96%A7%E5%A4%B4%E7%A0%8D%E5%87%BA%E6%9D%A5%E7%9A%84-dd0af5b6.md"
attribution: "New Distribution — https://xinjignxiao.com/en/articles/dealer-profits-are-hewn-with-an-axe-dd0af5b6/"
citation: "潘文富. “Dealer Profits Are Hewn with an Axe.” New Distribution, 2016-10-21. https://xinjignxiao.com/en/articles/dealer-profits-are-hewn-with-an-axe-dd0af5b6/"
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---

# Dealer Profits Are Hewn with an Axe

> Many dealers are overly optimistic about their gross margins, which leads to neglect of cost control. In reality, hidden costs are high, and net profits are often only 3-5 points despite gross margins of 20-30 points. To increase profitability, dealers must cut unreasonable costs, clean up unprofitable customers, employees, and suppliers, and simplify their operations.

**Private Enterprise Internal Management Research / Pan Wenfu**
Many dealers are quite optimistic about their distribution gross margins. Manufacturers typically offer at least 10-20 points (including purchase incentives and annual rebates), and small brands may even offer 40-50 points. Add to that the interception of various channel resources and promotional policies intended for terminals, inflating losses and market expenses, and selling off goods approved for write-off at a discount—all in all, the overall gross margin is still quite substantial.
> This optimism about gross margins naturally leads to neglect of refined cost control, with the belief that it's unnecessary—with such high margins, what are a few costs? Of course, some dealer bosses also think they've already done a good job on cost control, for example:
1. Not buying social insurance for employees, saving a lot;
2. Simple office conditions, saving a lot;
3. Never spending money on employee vocational skill improvement, saving a lot;
4. Continuing to use shabby office equipment, saving a lot;
5. Not wasting time on detailed warehouse inventory, saving a lot;
6. Not hiring external financial and legal advisors, saving a lot.
Perhaps on paper or in feeling, dealer bosses have already controlled costs well. But when off-book costs are included, the actual operating costs of dealers are very high—at least much higher than manufacturers of similar scale. Often, with gross margins of 20-30 points, actual net profit is only 3-5 points.
From a profitability perspective, for dealers with current turnover above 30 million (at factory price), profit sources come more from internal measures—by cutting unreasonable costs and even corruption and waste to improve profitability. If there is no complete and effective cost control, continuously adding products will instead lead to a continuous decline in actual net profit. In simple terms, when sales reach 100 million, the money earned is less than when sales were 30 million.
**To make more money, the boss must pick up the axe and chop where needed!**
**What to chop?**
> **1. Solve basic internal administrative losses**
Forgetting, not finding, and making mistakes—these three situations seem trivial, and it appears every employee has such small problems daily. But when the consumption costs of these three things are calculated, it's not a small amount. Especially for office staff, it directly wastes at least 20% of work time and energy. Quantified in monetary terms, each employee directly consumes at least 10,000 yuan of company assets annually due to these three things (forgetting, not finding, making mistakes). With 50 employees, that's 500,000 yuan!
> **2. Are all customers selling goods?**
Despite having hundreds or thousands of downstream customers on the list, generating tens of millions in sales annually, the detailed accounts don't look so good. For example:
1. Are these customers all real? How about verifying them one by one? Have you heard of the term "ghost payroll"?
2. Each customer incurs certain cooperation costs, such as various returns and exchanges, sales expenses, etc. Some customers' cooperation costs are greater than the sales profits they bring. That is, not all customers help dealers make money; some lose money. How many such customers are there? They need to be cleaned out.
> **3. Are all employees helping the company create benefits?**
Supposedly, the boss hires employees to work, to sell goods, and to help the boss make money. But 70% of sales personnel spend more effort on "committing crimes" (this is a view I have always held), that is, how to make money for themselves. Simply put, employees' actual total income is much more than what the boss earns. It's hard to say who is working for whom. So, for employees, we also need to take action:
1. Assume all employees have already committed crimes. First, conduct home visits to confirm home addresses and establish contact with employees' parents.
2. Re-verify all employee files—identity information, education, family information, historical employment records—don't take them at face value; check everything.
3. Hire professional management and legal personnel to investigate current employee corruption, extract relevant judicial evidence, and gradually grasp assets that employees can use for compensation in the future (houses, vehicles, bank accounts, etc.).
4. Whether through judicial organs or internal handling, it's time to take action against employees who are keen on corruption.
> **4. Are all manufacturers worth cooperating with?**
Not all manufacturers are reliable. Some manufacturers themselves are unreliable, some have unreliable products, some have unreliable bosses or salespeople, and more have poor work efficiency, slow expense reimbursement, and serious delays in returns and exchanges. This also needs a comprehensive cleanup; cut what should be cut:
1. Summarize all historical issues with manufacturers, including expense reimbursement, product returns and exchanges, and quantify the amounts.
2. Finance and business cooperation: check the actual sales movement of each product one by one, and clean out products with large inventory, slow movement, and many returns.
3. After clearly quantifying the relevant situation, first cut products, then cut manufacturers. According to my operational experience, cutting 30% of products and 20% of manufacturers is more reliable. Don't feel sorry; this is not cutting flesh, but cutting rotten flesh.
**Everyone knows business is getting more complex, but the vast majority of dealers lack the determination and ability to reform. Under current conditions, if you can't do addition, then do subtraction—comprehensively clean up, cut what should be cut, so that the company returns to a relatively simple and healthy state, and then carry out some reforms. That is relatively reliable.**
Born as a private business owner, operated a family dealer company for many years, during which I also served as business manager and trainer in several production enterprises. Research direction is internal management of small and medium-sized private enterprises, mainly topics include personnel management, cost control, management backend construction, and demobilized military personnel entering private enterprises. I continuously break down more than 400 topics related to internal management of private enterprises and keep updating material collection and solutions.
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## Citation metadata

- Publisher: New Distribution
- Author: 潘文富
- Published: 2016-10-21
- Canonical: https://xinjignxiao.com/en/articles/dealer-profits-are-hewn-with-an-axe-dd0af5b6/
- Original source: https://mp.weixin.qq.com/s/mGjmoAWuGrgnthUIzzGhzQ

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