---
title: "Distributors Say: \"We're Not Making Money with Your Business!\" What to Do?"
description: "When distributors claim they're not making money, it's crucial to understand what they mean by 'making money' and how they calculate it. This article explains how to analyze the situation, calculate ROI, and respond effectively to turn the conversation into a collaborative opportunity."
author: "刘华明"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2019-02-26"
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, it's crucial to understand what they mean by 'making money' and how they calculate it. This article explains how to analyze the situation, calculate ROI, and respond effectively to turn the conversation into a collaborative opportunity.

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**"We're not making money with your business!"**
Sales colleagues have likely 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 harm the partnership. So what's the solution? Here's how to respond.
Although it's just a simple sentence, it carries a wealth of information. First, what does "making money" refer to? Second, how is "making money" calculated? Finally, how should you respond 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 enables you to get more efficient cooperation from the distributor.
> **First, what does "making money" mean?**
Is it profit amount, profit margin, or return on investment (ROI)? The "making money" the distributor mentions could be different metrics, so next time someone says they're not making money, ask what they mean by "making money." Once clear, proceed with the discussion.
Once you know what it refers to, 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 helps determine the range of values, assess whether the figure is reasonable, and devise a response.
> **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 indicates how much money you ultimately earn from an investment; it's a common business investment metric.
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> ROI is a composite metric that includes not only profit indicators but also capital investment and other factors, covering various profitability goals of a business.
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> By eliminating the incomparability caused by different investment amounts, ROI allows horizontal comparison, making it easier to judge performance across industries and projects.
Although distributors may not know the term ROI, they often use this calculation to measure their business—**how much money was invested in this business, and how much profit it ultimately brings, corresponding to ROI = (earnings - costs) / investment. Then compare it with bank deposit rates or other projects to see if it's profitable.**
At first glance, the calculation seems simple, but if you dig deeper, it involves multiple aspects of distributor management, including 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 or low can become problematic, mainly involving the following three points:
▎**Are there omissions or errors in the calculation metrics?**
1) Have all applicable metrics been included? For example, has the distributor included rebates, incentives, and other income from the company? If not, the numerator becomes smaller, lowering ROI. Conversely, omitting certain items could shrink the denominator, inflating ROI, such as loan interest, taxes, and order reserves in financial expenses.
2) Have all applicable deductions been made? Has the credit period provided by the company been deducted? Have advance payments from downstream customers at ordering conferences been excluded? If not, it appears that more of the distributor's funds are tied up, increasing the denominator and lowering ROI.
**▎Are data sources reasonable?**
1) Are the data clear and reasonable? For example, if office rent is 2,000 yuan/month but calculated as 10,000 yuan/month, this inflates expenses.
2) Are there errors in understanding or calculating metrics? For instance, 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 allocate administrative expenses by brand, or are they all charged to your brand?
2) Classification of capital occupation: For cash, only order reserves and expense advances for your brand should be considered; idle funds should not be included.
Once the formula and calculation are clear, you can plug in the distributor's data to calculate their ROI.
For example, Lao Liu, a food distributor in a county:
**\- Sales situation**
Monthly total shipments: about 170,000 yuan, with your brand accounting for 100,000 yuan
Weighted gross margin for your brand: 13%
**\- Other income**
Monthly rebates: about 3%, so approximately 3,000 yuan/month
**\- Sales expenses**
The distributor has 1 full-time salesperson who sells and delivers all products from all brands, with a salary of 3,000 yuan/month; another part-time delivery person handles delivery for all products, with a salary of 1,500 yuan/month
Two vans: one for your brand, the other shared for all products. Depreciation and other vehicle costs: about 2,500 yuan/(month*vehicle)
Your brand requires display fees of 8,000 yuan/month, fully covered by the company, but the distributor must advance the payment
Promotional gifts and discounts: 8,000 yuan/month, fully covered by the company, but the distributor must advance the payment
Return/exchange costs: 500 yuan, borne by the distributor
**\- Administrative expenses**
Warehouse and office rent: about 6,000 yuan/month; no internal staff or other administrative expenses
**\- Financial expenses**
Interest, fees, taxes, etc.: essentially none
**\- Cash**
Order reserves: about 30,000 yuan/month
Advanced expenses: 16,000 yuan/month
**\- Receivables**
Average channel receivables: 100,000 yuan/month
**\- Inventory**
Average monthly inventory value: 30,000 yuan/month
**\- Payables**
No payables
Plugging the data into the formula, we can calculate the ROI for the distributor's business with your brand:
**Earnings** = Gross profit + Other income = 10*13% + 0.3 = 16,000 yuan
**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 yuan
**Investment** = Cash + Inventory + Receivables - Payables = 3+1.6+10+3-0 = 176,000 yuan
**ROI** = (Earnings - Costs) / Investment = (1.6-1.06)/17.6 = 3%
**This distributor's monthly ROI is 3%, annualized ROI is about 36%. Compared to the FMCG industry's annual ROI of around 20%, or the brand's average distributor ROI of 25%, he is very profitable.**
> **Finally, how to respond and get the distributor to listen to you?**
After collecting data and calculating the distributor's ROI, the purpose is not just to answer whether they're making money, nor should you directly present the ROI formula and results. Instead, use this opportunity to sell your ideas to the distributor.
Why? As mentioned in the second part, ROI analysis involves multiple aspects of distributor management. Regardless of the final result, it stems from 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 to introduce: summarized in one sentence: "You have problems or opportunities, I have methods or support, let's work together." How to use it? Take Lao Liu as an example.
**First, you have problems or opportunities.**
Lao Liu's ROI for your brand is relatively high, but his sales volume is too low, so the profit amount is small. Lao Liu should expand the business with your brand to earn more profit. Upon observation, several main issues emerge:
> Low coverage: The county and townships have over 1,700 outlets, but Lao Liu covers fewer than 200.
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> Low inventory: Average monthly inventory is 30,000 yuan, with only 11 days of inventory, below the company's 20-day requirement, leading to frequent out-of-stocks at terminals.
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> Insufficient staff: With 200 outlets, one full-time salesperson can only achieve 50% visit coverage, leaving nearly half of the stores without timely maintenance.
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> Insufficient investment: Lao Liu opened a restaurant at the end of last year, diverting time and capital, affecting the agency business.
**Then, I have methods or support, let's work together!**
Given Lao Liu's situation, you should take this opportunity to suggest he increase investment, improve coverage, and enhance terminal performance to boost sales of your brand. However, you can't just ask the distributor to invest; the company must also provide support.
> Increase investment: To earn more, he should leverage his strengths. Suggest Lao Liu shift time, energy, and capital back from the restaurant.
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> Add staff: The company can subsidize 1,000 yuan per salesperson, but the part-time person should be converted to full-time.
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> Strengthen management: Assign one salesperson to the urban area and one to the suburbs. Set routes and assess regular visits.
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> Coaching and training: The company should provide regular training for these two salespeople, focusing on terminal visits and key terminal elements. Supervisors should conduct irregular joint visits to coach and improve their sales skills.
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> Increase coverage: Once staff is in place, increase the number of covered outlets from 200 to 300. Assuming the top 15% of stores are visited 8 times per month, the middle 20% 4 times, and the bottom 65% 2 times, two people can achieve over 80% coverage quality.
Through the three steps of "ask, calculate, respond," you can not only answer whether the distributor is making money but also understand their situation. Then, using profitability as the basis for cooperation, propose a joint investment plan to build the market—a win-win approach.
Source: Weizhi
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