---
title: "In 2023, Dealers Should Make Improving the Speed of Making Money Their Top Priority"
description: "Dealers need to improve their capabilities, but more importantly, they need to improve their speed. In 2023, dealers should make improving the speed of making money their top priority. This article explains how to do this through three concepts: return on investment, turnover rate, and operating cycle."
author: "任文青Andy"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2023-01-31"
categories: "Dealer Operations"
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# In 2023, Dealers Should Make Improving the Speed of Making Money Their Top Priority

> Dealers need to improve their capabilities, but more importantly, they need to improve their speed. In 2023, dealers should make improving the speed of making money their top priority. This article explains how to do this through three concepts: return on investment, turnover rate, and operating cycle.

**Introduction: Dealers need to improve their capabilities, but more importantly, their speed!**
When communicating with dealer bosses, conversations like this often occur:
**Q: "How's business this year?"**
**A: "Just so-so, basically flat compared to last year."**
**Q: "What about profits?"**
**A: "You know this industry; the manufacturer calculates your profit margin to the last cent. At the end of the year, when you tally it up, you haven't made much money at all—profits are pitifully low..."**
Doing business is to make money, but obviously, trading and distribution is not an industry that allows you to get rich. Why not make money? Because the profit margin given by the manufacturer is limited! This is the natural thought of many dealers. Because of this thought, dealer bosses say, I want to fight for more rebates and more expense support from the manufacturer, I want to represent high-margin products, I want to minimize various expenses... These actions are all correct, but they don't truly make you more money. Why? You need to know that the amount of money you make depends on two factors: one is the ability to make money, and the other is the speed of making money. **For many dealers, improving the ability to make money is important, but more important than that is improving the speed of making money!** In 2023, dealers should make improving the speed of making money their top priority! I will start with three concepts to help you clarify your thinking.
#### **Return on Investment**
**The first concept is return on investment.** When communicating with dealer bosses, you hear things like: This year we did 30 million in sales, but in the end, we didn't even make 1 million, with a profit margin of only 3 points. Here, 3 points is the profit margin. **Profit margin = Profit / Sales** With 30 million in sales, the profit is 900,000. Doing business is to make money, so calculating profit is natural, but if you only think about profit margin, you are only thinking at the business level. Don't forget, in any business, you are also investing. What does that mean? In a pre-New Year survey, a dealer said that customers are dragging out payment terms longer and longer. This year, a supermarket chain ran away, and 2 million in receivables went down the drain. He lamented that old dealers can't make money here, and newcomers can't even enter because without several million in capital, you can't sustain it. That's very real. Three to five points may not be much, but without investing your capital, you can't earn it. **Any business is an investment; profit comes from sales, but fundamentally it is the return on your investment.** We are used to calculating profit margin based on sales. Since it is an investment, we should calculate return on investment. **Return on investment = Profit / Investment** Suppose you just started a trading business, selling 5 million a year with a profit of 150,000, but to do this business, you invested 2 million in principal. Your profit margin is 3%, and your return on investment is 7.5%. Investing 2 million and earning only 150,000 a year makes you think it's too little; next year you want to double it! How? **From the profit margin formula, it's simple: either increase profit margin or increase sales.** In the trading and distribution industry, profit levels are calculated by the manufacturer, so your room to increase profit margin is limited. So the simplest and most direct way to make more money is to increase sales. But to increase sales, you need to distribute to more outlets and push more inventory, which means you need to invest more money, thus increasing your total investment. Are there other ways to increase profit? Let's look at the return on investment formula: **Return on investment = Profit / Total investment**, so **Profit = Investment * Return on investment.** Therefore, besides investing more money to increase total investment, **there is another entry point: increasing the return on investment.** How to increase return on investment? The key lies in turnover rate.
#### **Turnover Rate**
What is turnover rate? **It is how many times the same investment can generate sales.** Expressed as a formula: **Turnover rate = Sales / Investment** For example, you buy a batch of goods from the manufacturer and sell them to retail stores. On average, it takes 2 months to sell them. The same operation can be done 6 times a year, so your annual turnover rate is 6 times. But if someone else can sell the same goods in 1 month, their turnover rate is 12 times. What difference does this make? Our most intuitive reaction is that others sell faster than me, so their sales will be higher than mine, but in reality, the more essential difference is that **for the same amount of capital, their efficiency in using it is higher than mine.** Let's simplify by using gross profit. Suppose the purchase price is 70 yuan, you sell for 100 yuan, with a gross margin of 30%, and you earn a gross profit of 30*6=180 yuan a year. Others also have a purchase price of 70 yuan, but only sell for 90 yuan, with a gross margin of 22.2%, earning only 20 yuan, but because they can sell 12 times a year, the calculation is 20*12=240 yuan. With the same 70 yuan investment, others have lower gross profit and sell cheaper, but in the end, they earn more than you. **You can understand turnover rate as the efficiency of your capital usage.** Do you remember the two formulas for profit margin and turnover rate? **Profit margin = Profit / Sales** **Turnover rate = Sales / Investment** Multiply the left and right sides of these two equations respectively. According to the principle of equality, the result is still equal, and we get the following: Profit margin * Turnover rate = Profit / Sales * Sales / Investment = Profit / Investment, that is: **Profit margin * Turnover rate = Profit / Investment = Return on investment** **Profit margin is your ability to make money, and turnover rate is your speed of making money; together they determine how much money you make.** You will find that all our daily efforts ultimately fall into these two aspects. Many times, we pay more attention to profit margin, but we don't know that what we really need to improve, and what is easier to improve, is turnover rate. How to improve turnover rate? We need to further understand another concept—the operating cycle.
#### **Operating Cycle**
**For a dealer, a complete operating cycle is the time from paying the manufacturer to collecting payment from the store.** For example, you pay for goods and pick them up. The goods stay in the warehouse (including your own and the store's warehouse) for an average of 1.5 months, then take another 1.5 months to sell out completely. The store's payment term is 2 months, but they delay payment for 1 month before paying you. The 3 months from when you receive the goods, they stay in the warehouse, to when they are sold to consumers, can be called the goods circulation cycle. The 6 months from when you pay out the money to when you finally collect it back is your operating cycle, which is also your cash cycle. That is, a sum of money turns over only twice a year. Why is it difficult for dealers to make money? The operating cycle is too long! Of course, different enterprises, different categories, different brand products, and different terminals have different operating cycles. The example is just an assumption, but it is an indisputable fact that dealers have long operating cycles. What's the use of saying this? Let's review. **From a financial perspective, a dealer's business is actually an investment, and the return on investment depends on profit margin and turnover rate.** What actions have we taken to improve profit margin? We fight with manufacturers for various preferential policies to increase brand gross profit. We combine first-, second-, and third-tier brands to improve overall gross profit. We do refined management to reduce expenses and improve final net profit... You might say, I'm doing all this, but I still can't make money! We've said, **profit margin is your ability to make money, and turnover rate determines your speed of making money. It's not that your ability is insufficient; it's that your speed is too slow.**
You must think of every possible way to improve turnover rate.
How?
**In your product mix, you must have first- and second-tier brands** — choosing the right products is important—it determines the speed at which your products sell at the terminal.
**Don't just be a distributor; you must build the ability to drive terminal sell-through**, because selling goods to consumers faster is the kingly way to shorten the operating cycle and improve turnover rate.
**Choose your customers carefully, and make sure to collect money as soon as possible.**
There is no credit period upstream, downstream customers delay payment, and brands require you to stock up, resulting in large capital occupation. If you can't collect money from customers in time, it often causes great operational difficulties. For the vast majority of dealers, sales turnover is based on cash turnover. Therefore, for customers with long payment terms, especially those who repeatedly delay payment, you should decisively consider whether to end cooperation, because it will greatly extend your operating cycle and reduce your turnover rate—not to mention the risk of bad debts. **If possible, be sure to embrace digital transformation.** We have said before that B2b brings overwhelming efficiency advantages. Why? The secret lies in its fast turnover. In traditional trading, payment terms of several months to half a year are normal, but B2b platforms can achieve cash on delivery. Due to scale advantages, they can even obtain certain credit terms upstream. The efficiency advantage built by large-scale coverage and distribution essentially lies in the compression of the operating cycle, thus bringing advantages in capital usage efficiency.
#### **Summary**
Finally, let's summarize. Dealers are not only doing agency business but also investing funds to obtain returns. How to improve investment returns? You can make efforts in two aspects: **either improve profit margin—which represents your ability to make money, or improve turnover rate—which represents your speed of making money. These two factors together determine your investment return, that is, how much money you make.**
Dealers need to improve their capabilities, but more importantly, improve their speed. Therefore, you must think of every possible way to shorten the operating cycle and improve capital usage efficiency.
This article only shares a framework for understanding business from a financial perspective. For many dealers, it is not unfamiliar. Why still talk about it? Because I firmly believe: "What to do" is important, but "knowing why you do it" is more important. **Only by understanding the underlying logic will your direction be clearer, your thinking be clearer, and your actions be—more thorough!** I hope it helps you.****
**Recommended Reading**


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## Citation metadata

- Publisher: New Distribution
- Author: 任文青Andy
- Published: 2023-01-31
- Canonical: https://xinjignxiao.com/en/articles/in-2023-dealers-should-make-improving-the-speed-of-making-money-their-to-752f40c3/
- Original source: https://mp.weixin.qq.com/s/vTACvqsOlwvCSXrVCldADA

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