---
title: "Five \"Hidden Weapons\" for Distributor Profitability"
description: "In the FMCG marketing chain, distributors are the closest controllable link to the market and consumers, making their profitability crucial for manufacturers. This article outlines five common strategies distributors use to generate profit, including sales markups, rebates, terminal fee interception, promotion interception, and leveraging manufacturer resources."
author: "贺智勇"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2015-11-19"
language: "en"
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---

# Five "Hidden Weapons" for Distributor Profitability

> In the FMCG marketing chain, distributors are the closest controllable link to the market and consumers, making their profitability crucial for manufacturers. This article outlines five common strategies distributors use to generate profit, including sales markups, rebates, terminal fee interception, promotion interception, and leveraging manufacturer resources.

In the FMCG marketing chain, distributors are the closest controllable link to the market and consumers; their importance to every manufacturer, especially those without self-built channels, is self-evident. There is a saying in the FMCG marketing field: "Only when distributors make money can manufacturers make money." Without commenting on the absolute logic of this statement, one thing is certain: how to protect distributors' interests and ensure they work diligently for product penetration at normal profit levels is a topic every manufacturer should consider and must address. However, for distributors, only when they make money can their businesses develop and have a future; no distributor will engage in unprofitable transactions (except under special circumstances). How do distributors make money? Based on years of experience dealing with distributors, I have summarized some insights as follows:

**Several Ways Distributors (Agents) Make Profits**

1. **I Only Like You—Sales Markup Profit**
For almost all agents (distributors, sub-distributors), sales markup profit is the most transparent of all profit items. Buy at 1 yuan, sell at 1.5 yuan, earn 0.5 yuan—that's simple sales markup profit.
For FMCG, sales markup profit is divided into two types: one for hot-selling, fast-moving products; the other for non-hot-selling products.
For hot-selling products, such as 355ml small cans of Coca-Cola, 200ml bottles of Rejoice and Head & Shoulders, and 320g of Diao brand laundry powder, these are all hot sellers. All hot-selling products have two characteristics:
(1) They are well-known in the region. Whether international famous brands, domestic famous brands, or regional well-known brands, they must have channel awareness in the sales area; everyone knows them and is willing to accept them.
(2) The single product sales volume is large; they can circulate quickly. Because these products have high channel awareness and large sales volume, their prices are transparent within the channel. All distributors, whether terminal distributors or circulation distributors, will not add excessive profits to these products. The prices of these products are set by the market; whatever price everyone sells at, distributors can only sell at that price. If the price is higher, not only will the goods not sell, but it is also easy to be accused of charging too much. For products where manufacturers have poor price control, distributors sometimes not only make no money but even need to subsidize sales with part of their rebates. However, there are exceptions: some manufacturers with good market control will, in specific regions, unite distributors of the brand to jointly raise prices, increasing the sales markup profit per unit. For example, a new laundry powder private enterprise in Guangdong.
The second type is non-hot-selling products. Most distributors (agents, sub-distributors) will set a high markup rate for these products, but of course, they sell less than hot-selling products per unit time.
In summary, for these two types of products, there is a saying: "Products that sell in large quantities cannot be sold at a high price; products that can be sold at a high price do not sell in large quantities." This saying also reflects a distributor's mentality: they hope that all products they distribute have a high markup rate while also selling well. This raises a requirement for manufacturers: how to maintain the product price system, control cross-regional sales (channel conflict), form regional price monopoly, keep distributors interested in operating with profits, and ensure product penetration into all sales links.

2. **It's Not Easy to Say I Love You—Sales Rebates**
FMCG manufacturers usually set certain sales rebates to reward distributors (agents) for their sales work. Generally, sales rebates are divided into monthly rebates, quarterly rebates, and annual rebates. Quarterly and annual rebates are more common. Rebates typically range from 1% to 4%. Some manufacturers, to achieve certain sales goals, such as increasing the distribution rate of new products, will give distributors (agents) a new product rebate; to improve terminal display, they will give distributors a terminal rebate; to prevent distributors from selling similar/competing products, they set exclusive/specialty rebates; to increase the delivery rate/distribution rate of products to terminals, they support certain distributors with vehicles or provide delivery rebates for distribution support; to restrict distributors from cross-regional sales, they set cross-regional sales (channel conflict) rebates; to improve terminal delivery efficiency, they provide vehicle delivery subsidies; to avoid bearing product damage, they set damage subsidies, etc.
There is no free lunch in the world. These rebates given by manufacturers are conditional; only when certain conditions are met can these rebates be obtained. For example, for quarterly rebates: distributors (agents) only get the corresponding sales rebate if they complete the sales tasks set by the manufacturer; the higher the sales volume, the more sales rebate they receive (of course, different manufacturers set rebates according to their own goals; many manufacturers with mature brands, to maintain the market price system, do not set tiered rebates, encouraging distributors to sell their products steadily). If the sales target is not met, the corresponding rebate cannot be obtained. Similarly, for other rebates, for example, some manufacturers now set terminal rebates; only when distributors achieve the display standards for main terminals in the specified market will the manufacturer give the distributor the rebate according to the agreement. For another example, some manufacturers set rebates to prevent cross-regional sales; if a distributor in the region has cross-regional sales within the specified time or reaches a certain amount, the distributor will not get the corresponding rebate.
For distributors (agents), it is important to always pay attention to the conditions of these rebates set by manufacturers and strive according to these conditions to get the best returns.

3. **I Won't Tell You Even If I'm Beaten to Death—Interception of Terminal Fees**
With the acceleration of urbanization in China, the channel transformation of FMCG is also proceeding rapidly. In cities and towns, terminal stores of various formats are opening more and more; consequently, there are numerous and dazzling terminal fees. Simply summarizing terminal fees, there are the following types: sales rebates (sales commissions), display fees (including stack fees, end-cap fees, overall shelf fees), advertising fees (poster fees, lightbox fees, store sign sponsorship fees, pillar advertisement fees), special discounts (special price discounts, shocking price discounts, compensation above minimum price, zero-package damage reduction, etc.), new product fees (new product barcode entry fees, temporary barcode input fees, first order free for new products), promotion personnel management fees (fixed management fees, uniform fees, training fees, work card fees), transportation fees (including logistics fees, warehousing fees), new store sponsorship fees, festival sponsorship (Spring Festival, National Day, store anniversary, May Day, etc.), etc.
With so many fee categories, of course, not every store can demand all of them from every supplier. The amount of contract fees signed is related to the popularity of the supplier's products and the depth of cooperation between the supplier and the store. Usually, for stores not directly operated by the manufacturer, the fees are usually advanced by the agent and reimbursed by the manufacturer after the fees are fully incurred. If some manufacturers do not strictly control the fee application, reimbursement, monitoring, and audit processes, there will be a lot of trickery at the distributor level. Examples are as follows:
For example, a distributor represents products from 5 manufacturers. When a new store opens, the distributor negotiates a package entry fee of 10,000 yuan for 200 SKUs. However, when reimbursing, the distributor can ask the manufacturer for 300 yuan per SKU, so the virtual fee generated is: 300×200-10000=50,000 yuan.
Another example: a product is on special promotion in a store. If the manufacturer gives the store a special price subsidy of 50 yuan per piece, the store will order 500 pieces during the promotion. If the store actually sells 200 pieces, it will return 300 pieces, but there is already a delivery receipt for 500 pieces, so the distributor can apply for a subsidy of 500×50=25,000 yuan; the virtual part is 300×50=15,000 yuan.
Another example: if an agent signs a contract with a store for Spring Festival sponsorship fees of 5,000 yuan for 5 manufacturers, the agent can tell each manufacturer that the store asked for 1,000 yuan from each manufacturer, so the virtual fee generated is: 1000×5-500×5=2,500 yuan.
Of course, many manufacturers require agents to provide evidence/proof of the fees when reimbursing, such as store special delivery orders, sales agreements signed between the store and the agent, stack special agreements, activity posters, activity stack photos, etc. But "counteract one move with another." Distributors also have various supporting tricks. If the manufacturer needs a copy of the contract, no problem; the copy can be modified and then copied again to fully meet the reimbursement figures. If the manufacturer needs the original contract, no problem; some distributors can reply that the store is unwilling to sign a contract and cannot provide it. Some distributors even privately engrave the contract seals of all major stores in their operating area and prepare blank contract forms for the stores, specifically to handle the manufacturer's fee reimbursement procedures. (These methods are only used by a few distributors and do not represent all agents.)
For manufacturers, improving the fee application and reimbursement process, strictly controlling the fee generation process, and strengthening fee monitoring are tasks before them. At the same time, the expansion and contraction of fees is a double-edged sword: if used well, it can enhance distributor confidence; if used carelessly, it will dampen distributors' interest in distribution—"When the water is too clear, there are no fish!"

4. **I Love You Without Discussion—Interception of Promotions**
The 4Ps in marketing are: Product, Price, Place, Promotion. Promotion is a very important link in the sales process; especially for traditional channels. For example, manufacturers give a 100+10 promotion policy to promote distributor purchases. Another example: within a specific time and region, if sub-distributors accumulate sales to a certain amount, they can enjoy manufacturer promotions (such as TVs, refrigerators, free travel, etc.). These are all profit-sharing activities by manufacturers to promote channel sales.
Many distributors (agents) do not pass on the policies they enjoy to their downstream sub-distributors or do not fully enjoy them themselves, failing to achieve the manufacturer's promotional goals. For example: a laundry powder manufacturer runs a 100+15 promotion for a specific period. A distributor purchases 500 pieces and enjoys a promotion of 75 pieces. After receiving the goods, the distributor does not pass on the manufacturer's promotion information to downstream sub-distributors but sells at normal levels. After selling 500 pieces, the 75 pieces given by the manufacturer become pure profit. This is typical promotion interception. For the manufacturer, the promotional goal is not achieved, and the deep distribution of this batch of products is not completed.
Of course, many manufacturers take measures to prevent the loss of promotional resources, such as in-box gifts or marking promotional information on the packaging. The purpose of these measures is to ensure that sub-distributors in the promotional area receive the promotional information and enjoy the manufacturer's promotional policies.

5. **The Great Shift—Reuse of Manufacturer Loanable Resources**
Manufacturer loanable resources—resources lent by the manufacturer to distributors (agents) to achieve certain marketing goals.
Loanable resources include two types: hard loanable resources and soft loanable resources.
Hard loanable resources include "payment terms," "credit limits," "initial stock," "free goods," etc.
Many manufacturers give certain credit limits, payment terms, or initial stock quantities to help distributors with large sales volumes and good credit histories. But if the resources given by the manufacturer exceed the distributor's needs, the distributor has surplus resources to use. Especially those large distributors doing terminal business can obtain abundant resources from the various manufacturers they represent. If these resources are abundant to a certain extent, it would be wasteful not to use them. Instead of wasting them, it is better to make secondary investments, "borrow a chicken to lay eggs," making money from money.
For example, a large client I know in Guangdong who does agency business in a big city has an annual business volume of about 200 million yuan. The more than 10 brands he represents all give him certain payment terms or credit limits. If the total credit limit given by manufacturers is 50 million yuan, but the actual credit needed in the market is 30 million yuan (30 million is the capital tied up when the distributor operates the brand; including inventory capital, store credit, sub-distributor credit, etc.), then he has 20 million yuan of reusable resources. This 20 million can be used for many things, such as opening a decoration market, opening a store, or running a factory. Using the 20 million surplus resources from various manufacturers to make money is a natural thing.
Of course, there are conditions for distributors to use these manufacturer loanable resources. First, distributors must have absolute control over the local sales network and channels, and be able to use their control over the local market network and channels as a bargaining chip with the manufacturer. Second, distributors must have a good cooperation history with the manufacturer, with no bad credit records in the cooperation records. The manufacturer must already trust the distributor or have eliminated most of the lending concerns. Third, distributors must have a certain strength base; here, strength base refers to the distributor's operating conditions. Generally, if a manufacturer wants to lend to a distributor, it will assess the distributor's inventory, inventory area, operating vehicles, represented brands, registered capital of the distributor's company, etc. These are all manifestations of distributor strength. Finally, distributors must have good business relationships with the manufacturer's business personnel and even the manufacturer's sales decision-makers, through which they can obtain loanable resources.
Soft loanable resources include using the manufacturer's channels, brand endorsement, and business personnel assistance for expansion. These resources are not measured by quantity, but they are very important for some agents (distributors).
For example:
A well-known Japanese daily chemical company's brand expansion, promotion, and business channel development in Guangzhou have never been smooth. Agent A has serious lack of confidence in this brand, so the manufacturer decided to replace the agent in the Guangzhou region. At this time, Distributor B, who represents another domestic daily chemical brand, came into the Japanese brand's agent selection view. After evaluation and negotiation, Agent B replaced Agent A as the exclusive agent for the daily chemical brand in the Guangzhou region. Originally, B's terminal channels in Guangzhou were not very complete, and he had no experience operating international K/A stores. By representing this brand, he used the brand's existing K/A store channels in Guangzhou and thus opened the K/A market he had long coveted. At the same time, because the Japanese brand provided personnel guidance and help to Agent B, and because the daily chemical brand is an internationally renowned brand, not only did the originally unfamiliar channels become smooth, but the original brand he operated also benefited from the international brand's endorsement, and the deep sales channels in the market were spread wider.
For agents, how to gain the manufacturer's trust and use the manufacturer's loanable resources to make money is a topic every distributor (agent) should ponder.
For manufacturers, it is necessary to conduct a correct market assessment of the distributor's market when giving resources and help, and give as much as needed; to avoid giving resources—"good steel not used on the blade."
The above are the five common tricks distributors (agents) use to make money. As the saying goes, "In business, talk business." The way of business has no absolute right or wrong; as long as it does not violate morality, law, and credit, it is the right way.

**-END-**
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