---
title: "Distributor Expense Control: Don't Always Look to Cut Costs on People, but Make Expenses More Effective on Things!"
description: "Many distributors complain that their sales are growing and gross margins look good, but they still don't make money. A closer look reveals that expenses are too high. While personnel costs are a factor, they are hard to change. Distributors should focus on making their market expenses more effective rather than just cutting costs on people. For example, a 800-yuan display should yield 800 yuan worth of results."
author: "李锋"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2020-04-18"
language: "en"
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original_source: "https://mp.weixin.qq.com/s/Y7Kzjn876uoVPb3BrcQaqg"
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# Distributor Expense Control: Don't Always Look to Cut Costs on People, but Make Expenses More Effective on Things!

> Many distributors complain that their sales are growing and gross margins look good, but they still don't make money. A closer look reveals that expenses are too high. While personnel costs are a factor, they are hard to change. Distributors should focus on making their market expenses more effective rather than just cutting costs on people. For example, a 800-yuan display should yield 800 yuan worth of results.

Many distributors complain that their sales are growing year after year, and gross margins look decent, but they still don't make money. Upon careful calculation, they find that expenses are too high. When it comes to expenses, distributors naturally think of rising personnel costs. That's true, but personnel costs are influenced by a combination of internal and external factors and are hard to change. Without people, you can't increase revenue. But besides that, distributors should understand that there are many other expenses that can be reduced.

It's no exaggeration to say that **many of the expenses distributors put into the market are wasted, or even ineffective. Therefore, distributors should not always think about saving on "people" but rather make money spent on "things" more effective. If you buy an 800-yuan display, you must get 800 yuan worth of effect.**

The essence of distributor profitability is buying low, selling high, and not wasting money in between. When it comes to increasing revenue, many distributors have been in the trading business for over a decade and have rich experience. But when it comes to reducing expenses, many distributors haven't paid attention to controlling and cutting costs. They only know that expenses are high, but it seems every expense can't be reduced.

To discuss how to control expenses, New Distribution invited Mr. Li Feng, Executive President of Anshan Hongye Hengda Trading Co., Ltd., to talk about how distributors can achieve market growth and profit increase through expense control. Even if expenses can't be reduced, it's important to make the money spent generate more benefits, ultimately achieving the goal of increasing net profit.

**-01-**
**Where is the root of expense waste?**

Before discussing expense control measures, let's first talk about the root causes of expense waste.

**First, expenses are not used in a planned manner; they are spent as they come to mind.** Distributors should learn from brand owners and emphasize strong planning. This is something distributors must pay attention to.

**Second, distributors do not set standards and red lines for expense usage.** For example, when holding an ordering meeting, whether to offer a 2% or 3% discount is decided without calculation. Prizes like cars, TVs, refrigerators are given without knowing the cost standards or the return on investment. If there were a minimum standard for expenses in advance, distributors wouldn't find themselves not making money at the end of the year.

**Third, regarding the input-output ratio of expenses, because finance doesn't provide data analysis, expenses are invested according to standards, but it's unknown whether there is corresponding output.** If an expense is effective, the salesperson doesn't get praise or incentives. If money is wasted, there's no discussion about adjustments. Overall expense management requires financial personnel to regularly submit reports and analyze data, at least to check the reasonableness of the input-output ratio. Only by identifying problems can they be solved.

**Finally, and most critically, salespeople's stance is inconsistent with the boss's. Expenses have nothing to do with salespeople; only sales volume and amount matter, because they relate to commissions.** This ultimately leads salespeople to help terminal stores aggressively request expenses and policy resources to achieve their sales targets and increase commissions. This isn't the salesperson's fault; it's human nature. The salesperson isn't doing anything wrong.

A "big customer" requests 500 boxes of goods and asks for expense investment. The distributor boss thinks it's a big customer and quickly gives it. Then Xiao Wang asks, and Xiao Li also asks; if they ask once, they'll ask again. It's not about not giving expenses, but whether the distributor has set expense standards. When expenses are given and the input-output ratio is positive, can the salesperson be encouraged to make the terminal reduce expenses a bit, or if expenses can't be reduced, can the display be improved?

The above are the roots of expense waste. Next, let's look at specific expense control measures.

**-02-**
**Annual expense planning and setting standards**

A distributor friend of mine has annual sales of 50 million yuan, with a gross margin of 14%, giving a gross profit of 7 million. But at the end of the year, after deducting related expenses, only 450,000 yuan remains.

**If distributors want to make money, they must do a good job of annual expense planning, planning down to each project, department, channel, and even each person. Set upper limits, evaluate monthly, and if expenses exceed the limit, push them down.**

Take a grain and oil distributor with annual sales of 80 million yuan as an example:

**The above are the details of various expenses. Turn expenses into a table, compare with the same period last year, see how much each item has increased or decreased, and analyze the expense ratio. Set gross margin standards, for example, gross profit not less than 12%, ensuring net profit not less than 4%.** At the same time, break down expenses and give them to each department head, asking them to analyze which expenses can be controlled and which can be saved.

**Set different gross margin standards for different channels.** For grain and oil, the traditional channel has a minimum of 12%, modern channel 15%, special channels (group buying) 14%, fresh supermarkets with shorter payment terms 13-14%. Catering channels (cash settlement, high volume) have a minimum of 10%, and those with payment terms have a minimum of 15%.

**With minimum gross margin standards and minimum profit standards, expenses are basically fixed. Strictly control them in daily operations, not exceeding expense standards, to ensure basic net profit.**

Take the largest expense, sales expenses, as an example. How to control them?

For a store, what was the sales volume in the month before investing expenses? What was the sales volume in the month after investing expenses? How much profit can be made? Use sales data to have finance show you if it's true. Without standards for sales expenses, they often go out of bounds. List the details of sales expense usage and let department heads handle them flexibly within the set limits, but not exceed the quota.

**-03-**
**How to control and check expenses?**

Apply first, then execute. Many distributors know this, but often the final step of verification is missing. I believe **the verification process is the most important. With this process, I think 50% of the problems regarding input and output can be solved.**

In the verification process, there must be sales figures after the expense investment. Where do the sales figures come from? The office director checks them on the computer and signs off. The verification clerk has photos, gets confirmation from the manager, and finally the boss signs.

**1. Hold a monthly "expense input-output ratio" meeting**

Through standardized process design, control expenses. From the 10th to the 25th of each month, I meet with department managers to review the expense input-output ratio. Through expense analysis, we identify which stores are profitable and which are not proportional, find problems, and adjust investment direction.

Frankly speaking, **it may not be realistic to reduce expenses, but it is feasible to make expenses truly execute effectively through control. The ultimate goal is that after investing expenses, sales increase and profits rise, not to actually reduce expenses.**

**2. Visit the market irregularly with expense details**

Department heads and distributor bosses should irregularly visit the market with expense investment details to check the execution of expenses.

Here's a real case: At the beginning of 2019, a salesperson wanted to hire a temporary promoter at a supermarket during the Chinese New Year peak season, requiring attendance reports in the morning, noon, and evening, with photo checks. The salesperson found a relative to do it, just at a town supermarket, taking photos every day and then leaving. One day I happened to visit the store and found the display was poorly done. When I talked to the supermarket owner, I found out the promoter never actually worked.

Stealing expenses, leaking expenses, and not executing expenses happen every day in the market. Distributors must regularly visit the market with expense details. Besides checking expenses, it's also about thinking whether expense usage is appropriate and if there's room for improvement.

**3. Financial personnel should report problems immediately**

Here's a key link: finance. **Financial personnel should review expense verification, usage, and profit data, helping the boss with reference and review.**

If salespeople don't speak up and department managers don't speak up, finance should play a supervisory role. When signing for reimbursement, if financial personnel find that a store's input-output is losing money, or expenses are too high, they must report to the boss in a timely manner. Finance is supposed to analyze report data for the boss, reporting monthly, speaking with data.

**4. Dedicated personnel track expense verification materials and supervise usage**

Each month, the previous month's expenses must be settled. If not, salespeople's wages are withheld. Distributors investing expenses is a good thing, but because of salespeople's procrastination, it can easily turn a good thing into a bad thing. When expenses are clear, data is true, and settlement is not delayed, customer satisfaction naturally improves.

Finally, for expense payment, directly transfer to the card. Sales personnel do not handle expenses. Terminal stores issue an authorization letter to the company, authorizing the expense to be paid to a specific name and card number, with a seal. For some "hidden" expenses that cannot be transferred, department heads and salespeople pay together on-site.

**-04-**
**Never make money from upstream brand owners' expenses!**

**For the management of expenses invested by upstream brand owners, there must be email and written confirmation letters, and monthly reconciliation with upstream manufacturers.** Because some manufacturers, especially those from small brands, may make empty promises to meet their targets without applying for expenses from their superiors.

So my suggestion is **manufacturers should provide expenses with email or written notice, and reconcile accounts with upstream manufacturers monthly. Otherwise, over time, reconciliation becomes difficult.**

Communicate the direction, details, amount, and execution standards of next month's expenses 15 days in advance. Plan ahead for the market. Distributors must never earn from brand owners' expenses, and also must not save on them. For example, if the brand owner gives 1,000 yuan for ground promotion, and the salesperson negotiates a 500-yuan display with the store, then buy two displays. Use the funds for their specific purpose to increase sales.

The above are specific measures and methods for distributors to control expenses. I hope distributors can use these methods to control expenses well, spend wisely, and achieve the goal of market growth and profit increase!


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