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Distributor Mr. Dai deals in dairy products and peanut oil, primarily serving traditional retail outlets. After years of hard work, he has built a reputation in the industry. In the past two years, he has felt increasingly overwhelmed, finding it harder to do business. His products are all well-known brands with an average gross margin of 10%, barely breaking even with slight profits. Retail shops pay cash on delivery, so there are essentially no bad debts, and cash flow is normal. He currently has five vehicles for logistics, covering the region adequately with sufficient delivery capacity. His sales team is also sufficient, with visit frequencies meeting promotional requirements, and all departments are well-staffed. From a network perspective, the distribution area assigned by the manufacturer matches his distribution capabilities, and the number of outlets is reasonable.
However, Mr. Dai's biggest puzzle is that although he sells more products than before, he earns less money. Now, he has to put in ten times the effort to achieve the same profit levels as a few years ago. With more staff, management has become more difficult, and staff motivation is lacking. Given the current business situation, increasing staff income would push the company into losses.
Therefore, the main challenge is how to motivate staff while saving costs to achieve a profit breakthrough.
After careful consideration, he tried implementing an "internal contracting" system. This means involving all staff in the business, sharing risks and benefits, breaking away from the traditional employer-employee model, and achieving revenue breakthroughs.
Saving Logistics Costs: Logistics Internal Contracting
For distributors, logistics costs are typically huge and hard to control.
It's easier to buy a car than to maintain it. Oil prices rise, road maintenance fees increase, and repair costs are unpredictable. The distributor may care about the vehicle, but the driver may not. After several drivers, the vehicle's condition deteriorates, leading to early retirement. Almost every month, there are repair costs; if not repaired, the vehicle must be taken off the road, affecting business and wasting fixed costs.
Almost every distributor complains about this.
How to make drivers care for vehicles, save costs, and improve logistics has become a major challenge. Mr. Dai thought that if drivers could take over all vehicle-related costs (including wages, daily operations, purchase, and repairs), it might be a solution.
- Calculate the depreciated value of the vehicle (i.e., how much the vehicle is worth now). Based on current sales and forecasts, set a reasonable depreciation period to fairly depreciate fixed costs, making it fair and acceptable for drivers.
For example, a 1-ton truck costs 80,000 yuan to purchase, with a legal depreciation period of 10 years. In the contracting calculation, set the depreciation period at 8 years. If the vehicle has been used for 3 years, the net depreciated value would be 50,000 yuan.
- Calculate the total contracting cost.
Continuing the example, based on the average spending over the past three years, a 1-ton delivery truck incurs total annual delivery costs (including driver's wages and daily vehicle expenses) of 40,000 yuan.
Since the depreciated net asset value is 50,000 yuan, if the distributor and driver agree on a contracting period of 4 years (after which the vehicle belongs to the driver), the annual vehicle asset cost is 12,500 yuan.
Thus, the driver would need to invest 52,500 yuan per year (can be paid monthly) to contract the logistics business.
Typically, the annual guaranteed delivery amount for this vehicle exceeds 2.5 million yuan. Therefore, the distributor can promise the contracted driver a logistics fee of 2% of sales.
That is, if the driver completes 2.5 million yuan in delivery tasks, the distributor pays 50,000 yuan in logistics fees; when completing 3 million yuan, the fee is 60,000 yuan...
And so on. The contracted driver earns more by delivering more and saving more, with the added incentive of owning the vehicle. This motivates drivers: to save on fuel and repairs, they proactively plan efficient delivery routes and maintain the vehicle; to increase income by boosting delivery volume, they closely cooperate with sales staff and pay more attention to terminal business.
Of course, the more sales, the more profit for the distributor. Moreover, the distributor avoids the hassle of daily management and maintenance, keeping logistics costs stable.
- After detailed calculation and mutual agreement, all cost details are clearly specified in the contract, and both parties formally sign it.
Stimulating Sales Enthusiasm: Sales Area Internal Contracting
For distributors, 90% of focus is on sales, and salespeople want higher income. Simply raising salaries may not effectively motivate.
"The wool comes from the sheep's back." Instead, divide sales areas and contract them out, eliminating base salary and tying income to sales volume, encouraging salespeople to actively explore their areas and increase income through sales growth.
Carefully evaluate salespeople. It's crucial to choose the right person for contracting. Evaluate based on work experience, loyalty, sales ability, family situation, and other factors.
Reasonably divide contracting areas. Consider the overall situation in each area, including terminal size and number, total sales, distribution of different products, and delivery vehicle matching. Ensure balanced and fair division, and after discussing with all staff and gaining consensus, include it in the contract. Also, set strict penalties to prevent issues like cross-region selling for higher income.
Set reasonable commission rates. Commissions can be calculated based on sales amount or volume under the specified price system. Consider actual sales of different products, with lower commissions for hot-selling items and higher for slow-moving ones, to encourage full-range promotion.
For example: The distributor carries 20 items, of which 6 are hot sellers, accounting for about 80% of total sales, but with only 8% gross margin. The remaining 14 items sell moderately, with about 12% gross margin. If each area's annual minimum sales are 1 million yuan (with hot sellers accounting for 800,000 yuan), then hot sellers can have a 1% commission, and other items 2%. After contracting, a salesperson's annual income would be 12,000 yuan, which equals their previous monthly income (1,000 yuan).
If a salesperson works hard and achieves 900,000 yuan in hot sellers and 300,000 yuan in high-margin items in a year, their annual income would reach 15,000 yuan.
Thus, salespeople's income is not only guaranteed but also has the potential to increase. This motivates them: to boost sales and income, they proactively develop outlets, improve customer relations, increase per-store order volumes, and monitor store sales.
For the distributor, this preserves existing profits, reduces management difficulty, and turns salespeople from passive to active (originally working for the distributor, now working for themselves), truly caring about and participating in the business.
What Else Can Be Contracted?
Through these internal contracting methods, Mr. Dai simplified complex management.
Mr. Dai says, "Although I can't reach the management standards of large companies, I've settled for this approach, which both motivates staff and ensures my profits—a win-win. Look now, it's past 8 PM, and delivery drivers and salespeople are still stocking shelves at terminals. The market is more refined, sales have increased, and it's much easier than before!"
Mr. Dai's next step is to convert management costs (daily office expenses, business expenses, phone bills, etc.) into commission points and contract them out to individuals.
Finally, he plans to gradually adopt a profit-sharing model through equity participation, jointly operating and sharing risks, transforming a private company into a public-type company through internal contracting.
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