In 2025, I conducted field research on no fewer than 50 distributor owners and identified many issues in warehouse logistics, team management, and channel management. I will compile these into a series of articles to share with you. Today, let's first discuss the ten major factors affecting distributor profit.
In recent years, it's a fact that making money has become increasingly difficult for distributors. External environmental factors are the same for everyone, but opinions vary. Some improvements can indeed boost distributor profit. I've divided these into cost-cutting and revenue-generating sections. Now, let's talk about how to generate revenue.
Execution Improves Profit
Demanding profit from execution is something I mention to every distributor, but execution must be concrete!
I have a formula: Execution = Knowledge × Skill × Attitude × Follow-up. Let me briefly share this.
Knowledge affects execution: product knowledge, system content, methods, and processes. Without understanding, execution is impossible. These are basic knowledge reserves for every marketing professional. To improve grassroots team execution, basic knowledge is absolutely essential.
Improvement plan: Teach through training, and check through exams.
Skill affects execution: proficiency in doing a task, not only being able to execute but also executing quickly.
For example, if a brand requires cut-case displays in every store, cutting cases is a skill. If you're not proficient, or you cut the product or take too long, how can you execute? Skills shouldn't be limited to learning; the master leads you to the door, but practice is up to the individual. Skill improvement requires trainers to continuously guide grassroots workers to practice, ideally forming muscle memory.
Improvement plan: Skills require continuous training.
Attitude affects execution: If attitude is not correct, execution will be inadequate or simply perfunctory.
Improvement plan: Communication and incentives—first provide correct guidance, then set up reward and punishment systems.
Follow-up affects execution: Without follow-up, systems, processes, and incentive measures cannot be implemented as planned.
Improvement plan: Conduct continuous checks.
In summary: If execution has problems, it's either insufficient knowledge preventing execution, insufficient skill hindering execution, incorrect attitude leading to poor execution, or inadequate follow-up due to laziness.
Store Efficiency Improves Profit
For FMCG manufacturers and distributors, store efficiency refers to the sales efficiency and operational effectiveness of FMCG distributors in terminal stores, and it's an important indicator of distributor market performance. So whoever can effectively improve store efficiency will gain a competitive advantage in the market.
I previously wrote an article proposing: Store Efficiency = Space Efficiency + People Efficiency + Cost Efficiency. Let me briefly review this here. For FMCG manufacturers and distributors:
Space Efficiency refers to the sales or benefits generated by each shelf group, each end cap, each floor display, etc.; it's an important indicator of the utilization efficiency of in-store display positions, and it's the primary indicator of store efficiency.
People Efficiency refers to the in-store sales assistant system. We know: in-store sales = foot traffic × conversion rate × average order value. We need to think: How can the funnel of foot traffic be focused on your brand? Sales assistants should shift from "passive interception" to "active interception," and how to do well in "selling more" and "selling at higher prices."
Cost Efficiency is the benefit or value generated per unit of cost, i.e., the formula: Cost Efficiency = Operating Revenue ÷ Operating Expenses. This indicator reflects the operating revenue generated per 1 yuan of cost invested, used to evaluate cost control and resource utilization efficiency. The higher the cost efficiency, the stronger the ability to convert cost investment into revenue.
Combining these three efficiencies to improve profit is a required course for distributor development!
In-store Employee Purchases Improve Profit
For many distributors, in-store employee purchases are often treated as a shot in the dark—happy if it works, fine if it doesn't. From now on, this shouldn't be the case; it should be treated as a necessary matter, as it has a positive impact on increasing sales and profit.
In-store employee purchases, first, can strengthen channel cooperation and relationships. Collaborating with stores on employee purchase activities helps deepen partnerships with stores and enhances their trust and support for the distributor.
Store employees become users and promoters of the product, which can improve the product's display priority and sales enthusiasm in the store, laying the foundation for future cooperation.
Second, accumulate private domain traffic and customer groups. Employee purchase activities can attract store employees and their friends and family to become brand fans. Through word-of-mouth and invitation mechanisms, this achieves low-cost customer acquisition.
These new customers often have high trust and repurchase potential. Later, through membership systems, community operations, and other methods, they can be refined and converted into long-term customers.
Finally, optimize inventory management. For products nearing expiration, out of season, or slow-moving, employee purchase activities provide a flexible way to clear inventory, avoiding capital occupation and losses caused by inventory buildup.
By setting differentiated discount strategies, you can quickly digest inventory while reducing impact on the regular price market.
Store Group Buying Improves Profit
Often, group buying is the monetization of a distributor's social relationships, but many distributors are embarrassed to ask, think it's not valuable, or use the wrong methods. As the saying goes, "A horse won't get fat without night grass." Group buying is excellent "night grass."
Group buying, first, has relatively stable profit. Compared to traditional channels, group buying demand is usually more explicit, the customer base is relatively stable, and it's less affected by frequent promotions, returns, and other policies.
This makes the profit margin for group buying clearer and more stable, contributing considerable gross profit to distributors and helping improve overall profitability.
Second, operational risk is lower. Group buying is mainly based on customization and pre-orders. Customers usually clarify their needs and purchase quantities before ordering, so there's basically no large-scale return problem common in traditional channels.
This reduces inventory risk and capital recovery pressure, making inventory turnover and capital flow more controllable, and operational risk relatively lower.
Finally, expand customer resources. By conducting store group buying business, distributors can reach more B2B customers such as enterprises and institutions, expanding their customer base.
These customers may come from different industries and fields, providing distributors with more cooperation opportunities and market space. At the same time, cooperation with B2B customers helps establish long-term, stable relationships and enhances customer stickiness.
Omnichannel O2O Improves Profit
Not long ago, I was on a business trip in Suzhou and visited three adjacent communities. I comprehensively assessed that there were no fewer than 6,000 households, but there were only two very small stores (no sales points within the communities) around. This situation is quite unusual. These businesses definitely have demand, but where do they satisfy it?
A delivery rider gave the answer: O2O. I checked Meituan and found no fewer than 5 large online supermarkets within 3 kilometers, with some products selling over 100,000 units.
It's not that there's no demand for distributors; it's that the way to satisfy demand is more complex, and this is a shortcoming for many trading companies. What are the values of O2O?
First, it meets consumer needs. Modern consumers have increasingly high requirements for shopping convenience and timeliness. The O2O model provides "order online, deliver offline" services, meeting consumers' immediate needs, such as daily necessities and food. This "see and get" experience aligns with FMCG consumption characteristics and can attract more consumers to choose the distributor's products.
Second, it enhances channel competitiveness. Under the impact of e-commerce, traditional offline channels face problems of reduced foot traffic and intensified competition.
Through the O2O model, distributors can complement offline stores and improve the overall competitiveness of the channel.
For example, offline stores can serve as fulfillment nodes for online orders, enabling "pick-up in store" or "instant delivery," improving consumer satisfaction.
Finally, data-driven precision marketing. O2O platforms can collect data on consumer purchase behavior and preferences, helping distributors understand market demand more accurately.
Based on data analysis, distributors can optimize product selection, formulate personalized marketing strategies, improve marketing effectiveness and conversion rates, and reduce marketing costs.
Therefore, combining online and offline is the inevitable path for channel transformation, adapting to the situation, and distributors must match the relevant operational skills.
Value Outlets Improve Profit
What are value outlets? The core factors are the store's capacity and share. The same outlet has different value for different distributors. For example, if outlet A contributes 1,000 yuan in monthly sales, is the category capacity 10,000 or 5,000? Is your category share 10% or 50%? These all affect your value judgment.
The basis for judging value outlets to improve profit: high outlet category capacity + low share of your category = your sales and profit space. To make money, you first need to know where the money is. There are roughly 6 steps:
- Define outlets: Let data speak, and precisely screen outlets according to the above definition.
- Adjust products: Optimize the product mix, pairing traffic-generating and profit-generating products.
- Adjust displays: Enhance brand awareness and reputation, highlighting the differentiated advantages of your products.
- Adjust merchandising: Focus on scenario construction and material matching.
- Adjust promotions: Optimize promotion intensity, format, timing, and other aspects.
- Adjust cost efficiency: Balance input-output and adjust cost usage.
Finally, establish a data monitoring system: Use information tools to build a value outlet sales data monitoring system, deeply analyze outlet data, identify sales growth drivers and existing problems, and provide a basis for decision-making.
For example, by analyzing sales data of different products, optimize the product mix; by analyzing sales data of different outlets, adjust outlet layout and resource allocation.
Three 1% Improvements Improve Profit
The three 1% refer to a 1% price increase, a 1% sales increase, and a 1% cost reduction. This is a shortcoming for many distributors who constantly pursue sales and profit but pay insufficient attention to some daily basic actions.
As shown in the figure above, demand profit from managing the three 1% (a case example after implementing the three 1% for a product), the final result is a profit increase of 22.21%. Even if we sometimes can't achieve a 1% increase, we should try not to have a reverse 1% increase.
Launching New Products Improves Profit
Many distributors are quite resistant to launching new products. In fact, if you find "targeted" outlets for the product, formulate a distribution package for single-store ordering, and handle in-store displays, product experiences, and later visit maintenance, launching new products can still be profitable.
New products are usually in the market introduction stage, prices are not yet fully transparent, and manufacturers give higher gross margins to encourage distributors to promote them. Compared to mature products, new product pricing strategies are more flexible, and distributors can obtain higher profits through reasonable pricing.
Manufacturers often provide policy support to promote new products, such as market promotion expenses, display subsidies, and promotional resources. These supports can reduce distributors' operating costs and indirectly increase profit.
Upgrading Service Capabilities Improves Profit
For some trading companies with mature basic conditions, profit sources are not only product price differences but also paid services to terminal outlets.
There are about 6 million outlets in China, but fewer than 10% of store owners truly understand retail. They opened small stores before simply to "make a living," and they almost don't understand what retail is (layout, product selection, pricing, promotion, etc.).
In the past, they could survive on the demographic dividend, but now they face large-scale store closures. At this time, some trading companies that understand retail are needed to empower outlets and guide their business, which is profitable. In my previous visits, several large trading companies have started to lay out their paid services for outlets, enrolling thousands of member outlets and providing one-stop services such as product selection, promotion, pricing, and supply chain.
Digital Transformation Improves Profit
Distributors can't always rely on "gut feeling" in business; they should gradually introduce data-driven decision-making, implement ERP, CRM, and other information systems to automate business processes and data management, use digital tools for market analysis, customer relationship management, and marketing promotion, and improve operational efficiency.
I won't elaborate too much here. Overall, I feel that distributors in the south do better than those in the north. Digitalization is one of the core competitiveness factors, and transformation is inevitable!