---
title: "Distributors Say: \"We're Not Making Money with Your Business!\" What to Do?"
description: "When distributors claim they're not making money, salespeople need to understand what they mean by \"making money,\" how it's calculated, and how to respond effectively. This article explains how to analyze the distributor's ROI, identify issues, and propose collaborative solutions."
author: "刘华明"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2017-03-08"
language: "en"
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# Distributors Say: "We're Not Making Money with Your Business!" What to Do?

> When distributors claim they're not making money, salespeople need to understand what they mean by "making money," how it's calculated, and how to respond effectively. This article explains how to analyze the distributor's ROI, identify issues, and propose collaborative solutions.

**Click the image for details**
**"We're not making money with your business!"**
Sales colleagues may have encountered distributors saying this. What should you do? Rush to defend, deny outright, or change the subject? In most cases, it's tricky, and mishandling it can affect cooperation. So what to do? Here's how to respond.
Although it's just a simple sentence, it contains a lot of information. First, what does "making money" refer to? Second, how is "making money" calculated? Finally, how to answer and get the distributor to listen to you? Understanding the first two points lets you judge whether the distributor's claim is true; mastering the last point lets you get more efficient cooperation from the distributor.
First, what does "making money" mean?
Is it profit amount, profit margin, or return on investment? The "making money" in the distributor's mouth may refer to different metrics. So, next time someone says they're not making money, first ask what "making money" refers to. Only after clarifying can you proceed.
Once clear, you need to ask the distributor compared to whom? Is it compared to their expectations, other brands they represent, or other distributors? Knowing the comparison basis determines the range of values, whether the number is reasonable, and how to address it.
Second, how to calculate whether they're making money?
If it's gross profit amount, gross margin, net profit amount, or net margin, most people understand these well—simple formulas and clear data sources. But when distributors say "making money," they often mean Return on Investment (ROI). Why?
  * _ROI is the amount of money earned back from an investment, a common business investment metric._
  * _ROI is a composite indicator that includes not only profit metrics but also capital investment and other factors, covering various profit objectives of a business._
  * _It eliminates the incomparability caused by different investment amounts, thus enabling horizontal comparison, which helps judge performance across industries and projects._
Although distributors may not clearly know the concept of ROI, they often use this calculation to measure business—how much money invested in the business and how much profit it brings, corresponding to ROI = (earnings - costs) / investment. Then compare with bank deposit rates or other projects to see if it's profitable.
This seems simple, but if you dig deeper, it involves multiple aspects of distributor management: product mix, rebate policies, incentive plans, expense management, cash management, inventory management, receivables management, and payables management.
At this point, calculating whether the distributor's ROI is high can have issues, mainly involving the following three points:
**▎ Are there omissions or errors in the calculation metrics?**
1) Are the metrics that should be added included? For example, has the distributor included other income from the company such as rebates and rewards? If not, the numerator becomes smaller, lowering ROI. Also, some items might be undercounted, making the denominator smaller and ROI inflated, such as loan interest, taxes, and order reserves in financial expenses.
2) Are the metrics that should be subtracted deducted? Has the credit period given by the company been subtracted? Has the advance payment from downstream customers at ordering meetings been deducted? If not, it appears that more of the distributor's funds are occupied, making the denominator larger and lowering ROI.
**▎ Are data sources reasonable?**
1) Are the data clear and reasonable? For example, office rent is 2,000/month, but if calculated as 10,000/month, this inflates expenses.
2) Are there errors in understanding or calculating metrics? For example, inventory is a point-in-time value, but if cumulative values are used, results will differ.
**▎ Is data allocation reasonable?**
1) Is expense allocation reasonable? For example, can the distributor distinguish administrative expenses by brand, or are they all charged to you?
2) Classification of capital occupation: For cash, only the order reserve and expense advances for your brand should be considered; other idle funds should not be included.
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After understanding the formula, you can plug in customer data to calculate the distributor's ROI.
For example, Lao Liu, a food distributor in a county:
\- Sales situation
Monthly total shipment value is about 170,000, with our brand accounting for 100,000.
Weighted gross margin for our brand products is 13%.
\- Other income
Monthly average rebate is about 3%, so the amount is about 3,000/month.
\- Sales expenses
The distributor has 1 full-time salesperson who sells and delivers all products the distributor represents, with a salary of 3,000/month; also a part-time delivery person responsible for delivering all products, with a salary of 1,500/month.
Two vans are equipped: one for our brand, the other shared for all products. Depreciation and other vehicle costs are about 2,500/(month*vehicle).
Our brand requires display fees of 8,000/month, fully borne by the company, but the distributor needs to advance the payment.
Gifts and discounts are 8,000/month, fully borne by the company, but the distributor needs to advance the payment.
Return and exchange costs are 500, borne by the distributor.
\- Administrative expenses
Warehouse and office rent is about 6,000/month, with no internal staff or other administrative expenses.
\- Financial expenses
Interest, handling fees, taxes, etc., are basically none.
\- Cash
Order reserve is about 30,000/month.
Advanced expenses are 16,000/month.
\- Receivables
Average channel accounts receivable is 100,000/month.
\- Inventory
Average monthly inventory value is 30,000/month.
\- Payables
No payables.
Plugging the data into the formula, we can calculate the ROI for our products:
Earnings = Gross profit + Other income = 10*13% + 0.3 = 16,000.
Costs = Sales expenses + Administrative expenses + Financial expenses = {[(3000+1500)*(10/17)+2500*1+2500*1*(10/17)+500]+6000*(10/17)+0}/10000 = (2647+3970+500+3529)/10000 = 10,600.
Investment = Cash + Inventory + Receivables - Payables = 3+1.6+10+3-0 = 176,000.
ROI = (Earnings - Costs) / Investment = (1.6-1.06)/17.6 = 3%.
This distributor's monthly ROI is 3%, annualized about 36%. Compared to the FMCG industry's annual ROI of about 20%, or the brand's distributor average of 25%, he is very profitable.
Finally, how to answer and get the distributor to listen to you?
After collecting data and calculating the distributor's ROI, it's not just to answer whether they're making money, nor should you directly tell the distributor the ROI algorithm and result. Instead, use this opportunity to sell your ideas to the distributor. Why? As mentioned in the second part, ROI expansion involves multiple aspects of distributor management. Regardless of the final result, it's caused by a series of management modules. As long as the distributor wants to earn more, there's room for cooperation and improvement. But why should the distributor listen to you? There are many methods; here's one, summarized in one sentence: "You have problems or opportunities, I have methods or support, let's cooperate and work hard." How to use it? Take Lao Liu as an example.
**First, you have problems or opportunities.**
Lao Liu's ROI for our brand is relatively high, but the shipment volume is too low, so the profit amount is not much. Lao Liu should expand the brand's business to earn more profit. After observation, several main problems were found:
  * Low coverage: The entire county including townships has over 1,700 outlets, but Lao Liu covers fewer than 200.
  * Too little inventory: Average monthly inventory is 30,000, with only 11 days of inventory, not meeting the company's 20-day requirement, and there have been multiple out-of-stock situations at terminals.
  * Insufficient staff: With 200 outlets, 1 full-time salesperson can only achieve 50% visitation, leaving nearly half of the stores without timely maintenance.
  * Insufficient investment: Lao Liu opened a restaurant at the end of last year, taking up time and funds, affecting the agency business.
**Then, I have methods or support, let's cooperate and work hard!**
In Lao Liu's situation, you should take the opportunity to suggest he increase investment, improve coverage, and enhance terminal performance to boost our brand's sales. But you can't just ask the distributor to invest; the company should also provide support.
  * Increase investment: To earn more, he should leverage his advantageous business. Suggest Lao Liu shift time, energy, and funds back from the restaurant.
  * Add staff: The company can subsidize 1,000 yuan per salesperson, but the part-time staff should be converted to full-time.
  * Strengthen management: Assign one salesperson to the urban area and one to the suburban counties. Set routes for them and assess regular visits.
  * Coaching and training: The company should regularly provide training for these two salespeople, mainly on terminal visits and terminal elements. Supervisors should occasionally accompany them on store visits to coach and improve their skills.
  * Increase coverage: Once staff is in place, increase the number of covered stores from 200 to 300. Assuming the top 15% of stores are visited 8 times per month, the middle 20% 4 times per month, and the bottom 65% 2 times per month, two people can achieve over 80% coverage quality.
Through the three steps of "ask, calculate, answer," you can not only answer the question of whether the distributor is making money, but also understand the distributor's situation. Then, using profitability as the basis for cooperation, propose a joint investment plan to build the market—killing multiple birds with one stone.
**Source: Weizhi**
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