Many distributors initially plan to build B2B platforms with the idea of profiting from transaction fees, but the author argues this is naive and unlikely to yield significant profits. The article explains why relying on transaction flow for revenue is flawed, and suggests that the real value of B2B lies in centralized procurement and distribution to reduce costs and increase sales.

Why do I say that? It's a bit complicated, so let's define a few terms first:

  • Technology provider: Big B
  • Local service station: Platform
  • Distributors who join the platform to sell: Distributors

1. Relying on transaction flow for profit is a major bug The so-called platform transaction fee means that the platform integrates a certain number of terminal stores in the local market, attracts other distributors to join, and then deducts a percentage from the transaction flow generated by store orders. Is this approach successful? Maybe it makes sense, but so far, most platforms I've seen only manage to scrape by with their transaction flow. There hasn't been a platform that has made a lot of money through transaction fees. If there is one, please let me know. Why can't they make money? First, there is a serious conflict between the platform's business model and the distributor's existing operating model: The platform must first confront the darker side of human nature: in the early stages of operation, the platform's network points need to be driven by first-tier brands/best-sellers/essential items to drive installation and transaction flow. However, first-tier brand distributors have a normal operating system for their huge local transaction flow. If this first-tier brand distributor joins the platform, their existing team will not easily cut or reform. Distributor salespeople, out of self-interest, will definitely resist terminal installation. As a distributor, if the platform belongs to someone else, I can use it to increase my transaction volume, but I will never be willing to share my network points with the platform. If the platform is owned by the distributor alone, it's better; they can use strong management and reward/punishment measures to push the business team to install terminals. But if the platform is a partnership, trying to get the existing partners to increase the installation rate of local market network points will likely result in partners who contribute money but not effort. Management and communication difficulty will increase exponentially. Suppose the above problems are solved and installation rates go up; then traffic will become a big issue. As mentioned before, even if distributors join the platform, they won't move their original transaction volume onto it. Why should they let the platform take a cut from their old customers? Salespeople can't be cut either; they still serve the original market, doing a good job, and with the inertia of previous sales, they will inevitably compete with the platform for transactions and intercept platform traffic. Once online traffic grows, conflicts of interest between salespeople and the platform become unavoidable. This is the conflict between the platform's operating logic and the existing distributor operating model. As a distributor, do you think they will compromise on business or platform? Facing this problem, some Big Bs and platforms have adopted a method of not charging transaction fees on the distributor's existing network points. But this still doesn't solve the problem fundamentally. Because it's not just about profit distribution of goods; it's that the distributor's existing organizational structure, performance appraisal, and other business models are built around the original logic, which itself conflicts with the new platform model. Distributors need to systematically adjust around the platform's operating model to adapt to the new model. And this logic should be reversed: if a distributor plans to join a platform, they should first separate people from vehicles, then do visit-order, then centralized distribution, then put products on the platform, then transform business functions to service, new product distribution, and terminal merchandising, and then hand over centralized distribution to the platform. But most distributors do not have the ability to quickly adjust and transform their business teams and operating models. Of course, they also don't dare. Second, everyone is selling goods to the same network points in the same place; no one dares to hand over all transactions to a potential competitor unless they are a major shareholder. So, the conflicts of interest caused by these bugs lead to most distributors without integration capabilities failing when they try to build platforms, and Big Bs sending people without operational capabilities to local markets, which will inevitably fail at the start. To be honest, if the platform doesn't give distributors tangible benefits they can see, it's too difficult for the platform to succeed in the local market. So, if a distributor wants to do B2B themselves, fantasizing about taking a cut from others' transaction flow and waiting to collect money, it's basically impossible. Because distributors with enough network points won't let you take a cut. For small distributors with few network points, the platform does provide incremental network points, but small distributors usually represent small brands, and it's hard to get products into stores and move them; they also need field staff to promote. How can traffic naturally generate on the platform? I'm not sure if I'm right, but taking a cut is the profit point for Big B, but definitely not for the platform (workstation). Workstations can't make money from cuts. Big B takes a cut from the traffic generated by the workstation's (distributor's) own products. To get others to generate transaction flow on the platform really requires effort.

Should distributors do B2B? How can they make it profitable? For distributors, B2B is still just a tool wrapped in an internet coat, not a business that can make big money. If the platform promotes profit through transaction flow, that's a scam. If distributors believe that, then you are naive. The real value of B2B lies in centralized procurement and distribution, efficient logistics integration to reduce overall logistics and labor costs, and increasing sales through more network points and SKUs. Some distributors might say, "I've already reformed internally, changing the sales team from vehicle sales to visit-order, doing centralized distribution to reduce costs. Why should I do or join a platform?" You're right, that's true. But logistics has economies of scale: the larger the scale, the higher the delivery amount per store, and the lower your logistics costs. No matter how you do it alone, you can't achieve hundreds or even thousands of SKUs. Also, do you think your profit can increase just by saving logistics costs?

Let me share two cases:

  1. In Qianjiang, Hubei, all the powerful agents have mostly achieved direct supply to terminals, flattening the channel, so there's little room to compress sales prices. To develop, 20 local distributors jointly invested to establish Hubei Nianjia E-commerce. They have over 500 brands. After establishing the new company, they first reorganized, consolidating warehousing and integrating over 200 vehicles. Then, combining sales teams with route orders, they achieved centralized distribution. They use their own e-commerce platform only for internal service, improving their internal logistics and distribution level and saving distribution costs. But they didn't keep the savings as profit; instead, they reinvested it all into the market to support more business teams. By increasing personnel, they expanded their product categories. More SKUs naturally increase sales, thereby increasing profits.
  2. Wanshanggou was originally a professional logistics company in Yantai. They built their own logistics base and distribution network, and over 6 years integrated all mainstream FMCG distributor distribution in the area, achieving daily delivery of 2 or more times within a 35km radius of Yantai. After distributors joined Wanshanggou, their logistics costs were only about 30% of what they were when they did it themselves. This huge cost advantage made distributors see real benefits, so they were willing to use the platform for distribution. Now, annual transaction flow has reached 6 billion yuan.

So, whether a market B2B platform can succeed depends on whether the platform itself is strong and specialized enough, with a sufficient advantage over local distributors in some aspect, such as logistics, warehousing, installation rate, or repurchase rate. Let distributors who want to cooperate feel that joining the platform truly reduces management and operating costs and increases sales and profits. Platform operators should also change their mindset: don't fantasize about taking a cut from transaction flow, but work together to increase installation rates, then profit from incremental network points and the horizontal expansion of their own brands.

Resource integration is key; talent is the core of building a platform. If you plan to unite a few friends to build a B2B platform and integrate the local market, getting everyone to join, it's better to think of it as integrating resources rather than just pooling money. Through the new company, integrate the capital, warehousing, and logistics of several strong local distributors, use centralized distribution to reduce each shareholder's operating costs, change the operating model to increase SKUs and efficiency, and thus boost sales. Those partners who only want to contribute money but not effort, waiting to take a cut from transaction flow, are meaningless to the platform. When building a platform, distributors should remember: gentlemen are harmonious but different; petty people are similar but not harmonious. You must find friends with common ideals and values to cooperate. Only then can you succeed.

This platform will soon organize distributors interested in building B2B platforms to visit and learn from some B2B platforms. If you want to join the editor to learn more, add the editor's WeChat. Please reply with the keyword: 学习 (Learn)

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