---
title: "Making Distributors More Profitable Is the Only Way for Manufacturers to Activate Them"
description: "As markets and retail evolve, distributors face increasing challenges, prompting manufacturers to seek ways to activate them. The key, as highlighted by two category leaders, is to increase distributor profits through three sources: product structure, channel structure, and operational efficiency."
author: "高级研究员 海游"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2025-06-11"
categories: "Dealer Operations"
language: "en"
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original_source: "https://mp.weixin.qq.com/s/8ZdNG7hEeQpjhA_UqXMUvw"
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citation: "高级研究员 海游. “Making Distributors More Profitable Is the Only Way for Manufacturers to Activate Them.” New Distribution, 2025-06-11. https://xinjignxiao.com/en/articles/making-distributors-more-profitable-is-the-only-way-for-manufacturers-to-c2314543/"
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---

# Making Distributors More Profitable Is the Only Way for Manufacturers to Activate Them

> As markets and retail evolve, distributors face increasing challenges, prompting manufacturers to seek ways to activate them. The key, as highlighted by two category leaders, is to increase distributor profits through three sources: product structure, channel structure, and operational efficiency.

Markets are changing, retail is changing, and distributors' businesses are getting harder. How can manufacturers activate their distributors? Many brand executives are discussing this topic.

In the past two years, I have provided "accompanying" channel consulting services to two leading companies in their categories. In discussions with both chairmen, a common concern emerged: how to increase distributor profits. So the answer to the opening question is: making distributors more profitable is the only way for manufacturers to activate them!

If we want distributors to make more money, where does the money come from? I propose three sources of profit: profit from product structure, profit from channel structure, and profit from operational efficiency. Let's discuss these three topics.

**Profit from Product Structure**

Distributors seeking profit from product structure should focus on two aspects: product mix and management.

**1. Optimize Product Mix**

- **Reasonable combination of products at different brand levels:** First-tier brands can cover the basic operating costs of distributors, ensuring their normal survival. They can also be bundled with second- and third-tier brands to improve trading terms for the latter, helping them quickly cover the sales network and spread distribution costs.
- Second-tier brands, after first-tier brands cover basic operating costs, can become the main contributors to profit, enhancing distributors' ability to resist risks and providing terminal market maintenance teams for third-tier brands. Third-tier brands, with the backing of first- and second-tier brands, can further increase profit margins, but attention must be paid to loss control.
- **Balance star products and mature products:** Star products are characterized by high profit margins and high market share; new products often fall into this category. They can leverage the brand's marketing to achieve good sales, but market prices must be controlled to ensure channel profits and prevent them from becoming inventory.
- Mature products are characterized by small profits but quick turnover, ensuring the company's operating expenses, providing cash flow, and supporting the development of other products. Maintain reasonable channel profits and invest more in consumer cultivation.
- **Introduce niche and potential products:** Niche products have high growth rates and low market share; they can generate profit and maintain customer relationships. If brand awareness is strengthened and a consumption atmosphere is created, they may develop into star products. Potential products may not have large sales volumes but have future growth potential; they can be focused on and promoted for long-term profit.

**2. Strengthen Product Management**

- **Regularly review product structure:** Introduce advanced financial management systems, regularly review product performance, and focus on analyzing "volume, cost, and profit" indicators. Through data on product purchases, sales, inventory, cash flow, gross profit, and expenses, understand each product's contribution to the business and determine a reasonable product mix.
- **Eliminate products with no profit or volume:** Products with low sales and no profit should be eliminated promptly to avoid tying up capital and inventory, reducing unnecessary costs and risks.
- **Focus on new product promotion:** New products are often launched by brands around future consumption trends, characterized by high prices, high profits, and high expense support. Distributors should fully utilize the manufacturer's personnel support, project plans, and expense resources, starting with easier tasks and focusing on breakthroughs, but also pay attention to the new product's market positioning, capacity, and development trends to avoid blind purchasing.

**3. How to Achieve Product Structure Adjustment**

I have compiled a set of methods for product structure adjustment: "6 Determinations and 1 Follow-up," which I share with you.

**Finally, it is worth emphasizing:** Manufacturers and distributors should fully empathize with each other, position their products well, and avoid endless internal friction.

**Profit from Channel Structure**

Distributors seeking profit from channel structure should focus on two aspects: optimizing channel layout and improving channel operational efficiency.

**1. Optimize Channel Layout**

- **Deepen traditional channels:** Study the sales and profit of your products across different channel types. For example, some distributors focus on modern channels and neglect traditional small stores, not realizing that although single-store output is low, the number of stores is huge, and total volume is substantial. Additionally, capital costs are relatively low (most are cash on delivery), and competition is less intense. However, attention should be paid to single-store capacity and share; outlets with high capacity but low share should be prioritized for breakthroughs.
- **Integrate channel resources:** Distributors can integrate existing channel resources to achieve synergies. For example, develop an internal multi-brand coordination system, negotiate display and shelf fees as a package, have one promotion cover multiple brands, integrate market resources from represented brands, and thoroughly cover service outlets (ensuring each outlet sells all brands you represent). Through channel integration, logistics and distribution can also be centralized and efficient, reducing logistics costs.
- **Expand emerging channels:** With the rise of e-commerce, community group buying, and other emerging channels, distributors should actively expand into these channels. First, do not reject these channels; believe that what exists is reasonable, and actively embrace them. Cooperate with e-commerce platforms to leverage their massive user traffic and convenient shopping experience to expand product sales and increase market coverage.

**2. Improve Channel Operational Efficiency**

- **Strengthen channel management:** Establish a comprehensive channel management system and strengthen management and service for channel members. For example, set clear channel policies and assessment standards, evaluate channel members on sales performance, market promotion, and customer service, and incentivize them to actively sell products. Also, strengthen training and support for channel members to improve their business capabilities and service levels.
- **Optimize logistics and distribution:** Establish an efficient logistics and distribution system to ensure timely and accurate product delivery. For example, cooperate with professional logistics companies, optimize distribution routes and methods, and reduce logistics costs and delivery times. Use information technology for real-time monitoring and management of logistics and distribution to improve efficiency and accuracy.
- **Strengthen inventory management:** Establish a scientific inventory management system and reasonably control inventory levels. For example, use data analysis and forecasting to accurately grasp product sales trends and inventory needs, avoiding overstocking and stockouts. Adopt advanced inventory management technologies and tools, such as inventory management systems and barcode scanning, to improve efficiency and accuracy.

**3. How to Achieve Channel Structure Adjustment**

I have compiled a set of logical models for channel structure adjustment, which I share with you.

**Finally, it is worth emphasizing:** Fresh stock age is definitely the core competitiveness of the channel. Balance the standards for occupying warehouse space and capital at each link of the channel chain, and also balance the investment ratio between distribution expenses and sell-through expenses; otherwise, you will lose more than you gain.

**Profit from Operational Efficiency**

Distributors seeking profit from operational efficiency should focus on two aspects: spending money where it counts and minimizing operating capital.

**1. Spend Money Where It Counts**

There are many expense categories involved; I'll take the first one, market personnel expenses, as an example: Optimizing coverage costs—how many salespeople does a distributor's business actually need? Adding people and vehicles is calculated, not done by rote or guesswork.

Case: The required sales personnel = 3900 / (effective outlets 25/day * 6 days/week * 4 weeks/month) = 6.5 people, indicating that 6 people are a bit tight, while 7 people are more than sufficient.

Operational notes:
- Based on historical sales data, classify terminal outlets by sales volume.
- Based on historical visit data, plan how many outlets a salesperson can visit in a day at full capacity across different channels and regions.

Other expense categories, functions, and purposes include:
- Trade promotion (TP) expenses: 1. Increase sales; 2. Respond to competition; 3. Promote new products (old driving new); 4. Occupy warehouse space in peak season.
- Consumer promotion (CP) expenses: 1. Increase average transaction value; 2. New product promotion; 3. Key product promotion.
- Display fees: 1. Increase sales; 2. Respond to competition; 3. Product display.
- Promotion expenses: 1. Themed activities; 2. Experience promotion; 3. Advertising and promotional materials.
- Incentive expenses: 1. Personnel salary subsidies; 2. Vehicle subsidies; 3. Terminal management.

The above expenses are all part of a distributor's daily expenses. Spending money where it counts is mainly reflected in three aspects: 1. Compare sales output before and after investment; 2. Optimize investment strategies based on results; 3. Eliminate inefficient investments and increase efficient ones.

**2. Minimize Operating Capital**

A distributor's operating capital includes two aspects: current assets, including cash flow, accounts receivable, inventory, prepaid accounts, etc.; and current liabilities, including accounts payable, notes payable, short-term loans, employee compensation payable, etc.

I'll take the five steps to minimize accounts receivable as a detailed example:

Step 1: Systematically review, by region and by business. 1. Regional managers and salespeople will have varying levels of accounts receivable; some high, some low, some good, some bad. 2. Since some can control it well, others in poorer regions can also do it. 3. Talk to the best and worst performers individually to understand the specifics.

Step 2: Accounts receivable must be linked to performance pay. To achieve the goal quickly, accounts receivable must be tied to performance pay, but it must be done gradually, setting a percentage reduction target for receivables.

Step 3: Set benchmarks and tighten accounts receivable authority.
- List each salesperson's monthly sales amount and accounts receivable amount, compare them in a full-staff meeting, identify the best and worst performers, have the best share their experience and the worst explain their reasons for lagging.
- Accounts receivable authority must be withdrawn; grassroots salespeople have no right to extend credit. Supervisors involved in receivables should also be constrained, such as limiting amounts or the number of accounts, and must implement one-store-one-policy with separate ledgers.

Step 4: Continuous tracking and checking. Regional managers should use daily morning meetings, weekly meetings, and monthly meetings to follow up and increase the team's attention to accounts receivable, promptly identifying and solving problems.

Step 5: After a period, summarize and classify customers, treating them differently. Based on financial strength and repayment willingness, divide customers into four types:
- Strong financial strength + strong repayment willingness: Absolutely no credit allowed.
- Strong financial strength + weak repayment willingness: Increase collection frequency.
- Weak financial strength + strong repayment willingness: Control shipment volume and reduce support.
- Weak financial strength + weak repayment willingness: Supply only after clearing previous debts.

**Finally, it is worth emphasizing:** The essence of improving operational efficiency is still the overall quality of the team. It requires considering both the skills and attitudes of personnel. Solving problems is one thing, team organizational capability is the second, and assessment and incentives are the third. These three are interlinked to solve personnel issues!

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## Citation metadata

- Publisher: New Distribution
- Author: 高级研究员 海游
- Published: 2025-06-11
- Canonical: https://xinjignxiao.com/en/articles/making-distributors-more-profitable-is-the-only-way-for-manufacturers-to-c2314543/
- Original source: https://mp.weixin.qq.com/s/8ZdNG7hEeQpjhA_UqXMUvw

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Contact: zhaobo258@gmail.com · +86 158 5481 7671