---
title: "Distributors: Is Your Marketing Spend Worth It? If Troubling, Try Digital Investment"
description: "Zhao Bo, founder of New Distribution, noted on social media that many companies are now sending dozens of executives to the China FMCG Conference, indicating that digital transformation is moving from concept to implementation. The hardest part to change is not organization or model, but interests and mindsets. Indeed, as brand owners digitize, distributors must also adopt digital tools to manage costs and working capital efficiently."
author: "高级研究员 海游"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2020-08-08"
language: "en"
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# Distributors: Is Your Marketing Spend Worth It? If Troubling, Try Digital Investment

> Zhao Bo, founder of New Distribution, noted on social media that many companies are now sending dozens of executives to the China FMCG Conference, indicating that digital transformation is moving from concept to implementation. The hardest part to change is not organization or model, but interests and mindsets. Indeed, as brand owners digitize, distributors must also adopt digital tools to manage costs and working capital efficiently.

**Click the image above for details**
Zhao Bo, founder of New Distribution, said on his social media on August 2: "During the preparation of this year's China FMCG Conference, we discovered a very interesting phenomenon: many companies have gone from one or two people registering to a dozen or even dozens of executives registering, and even bosses leading teams to attend. I think the digital strategy of various companies is really starting to move from concept to implementation. The hardest thing to change is not the organization or model, but interests and mindsets."
Indeed, today's FMCG industry, with the support of the internet, is changing rapidly. The essence of the internet is sharing, interaction, virtuality, and service. The essence behind "Internet+" is "data flow."
**The internet has made data flow, creating free movement among enterprises, people, and devices. With the continuous penetration and influence of the internet, brand owners' digital transformation has entered the deep-water zone, and as a result, distributors' digital transformation must also enter the practical implementation stage.**
Some distributors might say, "My business is good now, I don't need digitalization." But in my view, if your upstream brand owners have started transforming, over time it will involve issues of mutual matching. If the matching degree is low, the manufacturer-distributor partnership will dissolve quickly.
Some distributors might also say, "I have already equipped my sales staff with terminal devices as required by the brand owner, so I have started digitalization." But in fact, terminal devices are only the initial stage of digital transformation; they merely complete the collection of market data.
**True digitalization is based on collected data, conducting research on the data, and then deriving the market competitive landscape, strategic goals, efficient business models, and next steps.**
Regarding digitalization, distributors care most about three things:
**1. How to make money efficiently through digitalization?**
**2. How to improve cost-effectiveness through digitalization?**
**3. How to manage personnel efficiency through digitalization?**
Today we continue to discuss the second topic.
**-01- Digital empowerment: make every expense count**
The operating expenses of distributor market operations mainly include four parts:
> 1) Coverage costs; 2) Sales costs; 3) Fixed expenses; 4) Financial costs.
Let's break them down one by one.
**1. Coverage costs: basic expenses necessary to complete terminal network coverage**
**1) Market operations personnel costs**
Personnel costs have always been the largest expense in the FMCG industry. The issue is how many people can work at full capacity to ensure both the quantity and quality of work.
Here we need digital support: based on historical sales data, classify terminal outlets into grades. Key outlets should be visited 2-3 times a week, general outlets once a week, and poor outlets once every two weeks or once a month.
Secondly, based on historical visit data, plan how many outlets a salesperson can visit in a day at full capacity for different channels and regions, and then calculate the number of salespeople needed. For example:
Then the required number of salespeople = 3900 / (effective outlets 25/day * 6 days/week * 4 weeks/month) = 6.5 people, indicating that 6 people is a bit tight, while 7 people is comfortable.
**2) Vehicle and delivery costs**
**2. Sales costs: flexible expenses to increase terminal sell-through**
1) Display costs: digitally analyze input and output, focus on cost-effectiveness ratio.
2) Listing fees: digitally calculate the break-even point, the monthly sales volume and time period to recoup the listing fee, and evaluate whether the investment is worthwhile.
3) Promotional gift costs: digitally analyze the impact of promotional gifts on product sell-through to adjust in time.
4) Display material costs: digitally analyze the impact of display materials on consumer awareness to adjust in time.
5) Channel promotion costs: digitally analyze the relationship between channel promotion intensity and sales increment to achieve the lowest cost and highest sales.
6) Promoter costs: digitally analyze the impact of promotion venue, personnel image, and promotional products on sales.
7) Other costs: whether to invest or not, and what is the cost-sales ratio? All need digital analysis.
**3. Fixed expenses: costs that must be incurred to maintain normal company operations**
1) Warehouse costs:
It is necessary to analyze the annual sales of products, product turnover speed, how many pallets high products are usually stacked, how many products can be placed per square meter, and the average distance from the warehouse to the market. All these need digital research to avoid temporary warehouse rental due to insufficient space or waste of space, and to avoid pursuing cheap rent at the expense of distance, resulting in wasted fuel and salesperson visit time on the road.
2) Office expenses: distributor boss's personal preference, not analyzed here.
3) Management personnel costs: the number of managers and their salaries can be compared with industry standards in the market, also not analyzed here.
**4. Financial costs: interest and taxes from normal operations**
This item generally includes: capital interest, transaction fees, and taxes. It is necessary to analyze historical sales rhythm to control cash flow, smoothly transition through peak and off-peak seasons, and also keep track of cumulative annual sales to reasonably avoid taxes, which is very important.
Summary: The classified management of expenses must be based on digitalization, always paying attention to the cost-sales ratio, balancing between actual cost-effectiveness and target cost-sales ratio: the relationship between expense expenditure + expense budget (budget utilization rate) and sales completion + sales target (target achievement rate). Ensure the stability of operating input-output.
**-02- Digital empowerment: minimize working capital**
Working capital generally includes four parts:
> 1) Advance funds; 2) Channel arrears; 3) Inventory occupation; 4) Accounts receivable.
Let's break them down one by one.
**1. Advance funds: simplify reimbursement processes, speed up expense verification**
With the deepening of brand owners' digitalization, expense verification is no longer like before, where salespeople had to take photos, print photos, organize paper reimbursement materials, courier them to the regional marketing department for inspection, and then verify.
Now, the popularity of terminal tools and the ability to interpret data can greatly simplify these processes and reduce the amount of advance funds. It is worth mentioning that it is important to understand the verification process and supervise the standardized use of terminal tools.
**2. Channel arrears: strive for cash on delivery, adjust channel structure, implement aging management**
At this point, some terminal devices already have aging warning management, i.e., if a downstream customer does not settle within the specified time, the terminal system will issue a warning, reminding to collect payment or restrict supply. Secondly, through digital analysis, the sales volume and profit margin of the channel can be derived, thereby judging how to improve the cooperation form of the channel.
**3. Inventory occupation: adjust inventory structure, improve customer service levels**
For inventory issues, pay attention to two key digital indicators:
One is monthly inventory turnover rate = monthly sales / monthly average inventory amount, which reflects the turnover speed of inventory over a certain period; the faster, the lower the cost-sales ratio.
The second is monthly inventory turnover days = 30 / monthly inventory turnover rate, which reflects the number of days from product warehousing to sale; the lower the days, the faster the turnover, and the lower the average warehousing costs.
It is worth mentioning: **If the distributor's terminal mobile system is connected to the inventory system, then the first-in-first-out of inventory products will also be digitally tracked.**
**4. Accounts receivable: strive for the best manufacturer policies, adjust manufacturer portfolio**
**Final thoughts:**
**Distributors must not only make money digitally, but also spend money digitally, spending better and more accurately, to achieve both increasing revenue and reducing costs, and maximizing profits.**


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