---
title: "The Distributor's Three-Step Guide to Selling Goods"
description: "Distributors should not simply sell as much as possible or just meet factory targets. Instead, they must first surpass the break-even point to avoid losses, then complete factory sales tasks to secure resources, and finally achieve market leadership to maximize profits."
author: "刘华明"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2020-06-08"
language: "en"
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# The Distributor's Three-Step Guide to Selling Goods

> Distributors should not simply sell as much as possible or just meet factory targets. Instead, they must first surpass the break-even point to avoid losses, then complete factory sales tasks to secure resources, and finally achieve market leadership to maximize profits.

Before getting into the main topic, let me ask a question: As a distributor, how much should you sell?
Many distributors may never have thought about this question. They sell as much as they can, complete the factory's annual sales tasks, and collect rewards. Is that really the case? If it were that simple, there would be no need to discuss further. There should be a more fundamental logic behind how much a distributor sells. The first concern is whether you can make money from selling goods to support the entire company. If this problem is not solved, the company will not be able to survive. A distributor opens its doors for business, and even if you sell not a single case of goods in a day, you still have to pay a large amount of expenses: warehouse rent, employee salaries, utilities, etc. These costs do not disappear just because you don't sell. If the goods you sell do not cover these expenses, the company will incur losses, which will erode the business's capital. As capital decreases, you are not far from closing down. Therefore, the sales tasks set by the manufacturer are not the top priority; the top priority is not to lose money and to keep the company operating sustainably. **Based on this logic, there are three steps for a distributor to determine how much to sell: first, surpass the break-even point, i.e., not lose money; second, complete sales targets to obtain development resources; third, achieve market leadership to earn more money.**
**-01- How to Determine the Break-Even Lifeline?**
The break-even point, as the name suggests, is when the money earned from selling goods exactly equals the operating expenses, meaning no profit and no loss. Combining the return on investment mentioned in the previous article, when break-even is reached, the ROI is 0.
How to calculate the break-even point?
Take a simple example: a distributor has monthly operating expenses of 100,000 yuan and a gross margin of 20%. To reach the break-even point, they must sell at least 500,000 yuan per month.
Formula: Break-even point = Operating expenses / Gross margin
What are operating expenses? Operating expenses are fixed costs that must be paid regardless of whether goods are sold, such as basic salaries, warehouse rental, terminal display fees, promotional advertising fees, etc.
Some distributors may ask: Are discounts, rebates to terminals, and salesperson commissions considered operating expenses? Of course not. These are variable costs that only occur when sales are generated. For example, if you give a 10% discount to a terminal, but the terminal does not order your goods, you do not have to pay those costs. Variable costs differ from operating expenses; they only affect the gross margin.
For example, suppose the company normally has a 25% gross margin, but channel costs take 3 points, and salesperson commissions take 2 points, totaling 5 points. These costs must be deducted from the gross margin, so the gross margin you actually receive is only 20%. The break-even sales volume is the minimum amount you must sell. Above this line, the company makes money; below it, the company loses money. The first step for a distributor is to determine whether they have reached the break-even point. If not, there is a problem. Then the next step is to assign tasks to the sales team to reach the break-even point. Once you exceed the break-even point, you can move up and further complete the manufacturer's sales tasks, obtaining manufacturer resources to help you grow stronger.
**-02- Complete the Manufacturer's Sales Tasks**
From a market perspective, distributors and manufacturers complement each other. A manufacturer is an enterprise facing the national market, with limited management and operational capabilities. It cannot achieve deep distribution without distributors. Developing a new market without a mature sales network poses huge risks. Similarly, distributors cannot grow stronger without manufacturer support; you need the manufacturer's products to help you build network channels. Distributors must always understand that your strong sales network is inseparable from the brands and products behind you. Manufacturers are often the most powerful supporters in building your sales network, and their support greatly benefits your financial and material shortages. Under this premise, after reaching break-even, distributors should actively complete the manufacturer's sales tasks. The tasks set by manufacturers are based on large amounts of data and information, and for distributors, this is also an opportunity for upward development. Secondly, manufacturer expense verification, rebates, and additional rewards are tied to sales volume tasks; only by completing tasks can you get more support. Completing the manufacturer's tasks is the second step for distributors. After doing this well, you should start seizing market share and achieve market leadership.
**-03- How Important Is Market Leadership?**
There is no industry without intense competition. To earn more money, you need to find ways to position yourself as a market leader, leading competitors by as much as possible. At that point, you can earn more money. So how much do you need to surpass competitors to be considered market leadership? In marketing, there is a value called the "1.7 range." Let me explain: the 1.7 range means that in market competition, the ratio of market shares between competitors is called the "range distance," indicating the strength comparison between the two sides. If the ratio is above 1.7, it is said to exceed the "range distance." This ratio of 1.7 is a common dividing line for strategy formulation in marketing competition. When you exceed this value, your relationship with competitors changes from a linear competitive relationship to an exponential one, rapidly expanding.
When your market share exceeds that of competitors by 1.7 times, competitors need more money to compete with you, possibly several times more. For example, if your market share is 40% and the second-place competitor has only 20%, your share is twice theirs. When you both invest in KA store fees, you might spend 1,000 yuan for something, but your competitor might need 3,000 yuan. Why? Because your market share leads by too much, the terminal must consider not only the investment but also the loss of customer traffic, sales, and gross profit. **First, the larger the market share, the more purchasing customers you have. Twice the market share means twice the customer gap. If the terminal does not sell your product, they may lose many loyal brand customers.** **Second, twice the market share means twice the sales volume, especially in modern channels where store managers and buyers have task indicators.** Your large market share means a larger sales contribution, and if the terminal switches products, there is a risk of sales decline. Therefore, lagging brands need to provide more promotional support to ensure sales performance. **Third, high market share means greater profit contribution to the terminal.** You are a big brand, so your gross margin may be lower, but your sales volume is large, so your profit contribution is significant. This means that if the terminal does not sell your product, competitors must provide more fees to compensate for potential profit losses. For every retail terminal, if they do not sell your product and instead sell competitors', they must weigh the three losses behind it. **Therefore, only by becoming a market leader can you have market pricing power, and your cost efficiency will be higher than others, so you don't have to fight so hard to seize the market. At the same time, with sufficient pricing power, you can set prices and earn more profits.**
About the author: Liu Huaming, partner at SMI Consulting, senior consultant, MBA from Sun Yat-sen University. Dedicated to helping consumer goods companies open up marketing channels and solve regional expansion challenges.


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