In just two months, Zhang, the owner of an FMCG trading company, received five price adjustment notices from brand owners, with increases of a magnitude he had never experienced before. Zhang is in pain for three reasons: First, the brand owners raised prices to him very quickly—today they issue a notice, tomorrow they raise prices upon payment—but his own price increases to downstream channels are slow, requiring constant persuasion. Second, operating costs have been rising in recent years, especially for the team, with labor costs surging. Third, none of the products he carries have absolute pricing power; he is almost evenly matched with competitors, who are watching closely. If he raises prices and competitors don't, the customer loss could be catastrophic. These three mountains, coupled with disruptors like community group buying, have left Zhang with internal and external troubles, feeling breathless. Indeed, this is the reality of the distributor's environment in recent months, but business must continue, and one needs to "endure" slowly. Here are a few suggestions that may help in difficult times. Shift Team Mechanism from Employment to Partnership We calculated for distributors that labor costs are currently the heaviest burden. If wages are too low, you can't recruit or retain people; if too high, you work for nothing. Monthly assessment systems can motivate staff, but over time, enthusiasm wanes. Improving human efficiency is the most headache-inducing issue. Consider this: why does a distributor work overtime until 9 PM without complaint and with increasing vigor, while frontline staff complain constantly? The answer is simple: the boss works for himself. Employees work for the boss, so their starting point differs. This is the biggest drawback of the employment model—if it's not their own business, they won't care as much. Therefore, establish a profit-sharing system, turn employees into partners, and contract out market segments. It's important to note: market area contracting is not about replacing management with contracts, nor is it about being an absentee owner. Constrained contracting both activates employee initiative and effectively controls the market. The goal is to replace low human efficiency with high, low energy efficiency with high, and one-way communication with two-way. In summary: To make employees create value energetically, changing the team mechanism is a fundamental solution; improving human efficiency reduces cost ratios. Two Key Elements of Team Management Whether employment or partnership, management is needed. Freedom doesn't mean doing whatever you want. Managing employees well comes down to these two elements, covering 90% of the job. First: Work Attitude—Requires Rewards and Penalties One factor affecting human efficiency is work attitude. If attitude is poor, everything else is futile. Mishandling can lead to "bad money driving out good." At this point, establish rules and regulations, clear prohibitions, and penalties for violations. Second: Work Skills—Requires Training and Assessment If employees don't know how, teach them. Especially managers, who should thoroughly study why goals aren't met. If it's a skill issue, provide on-site "passing on, helping, and leading." For example, if communication skills are poor, take them to talk with more clients; if shelf display isn't up to par, demonstrate hands-on. Help improve skills, then set achievement rewards to incentivize correct work. In summary: Improving the team's overall capability and correcting attitudes enables better value creation. Should a Trading Company Grow Bigger First or Stronger First? There are no small but strong trading companies. Only distributors who achieve top sales in their region can withstand risks from manufacturers and the market. So, grow bigger first, then stronger. Why do I say this? First, from the brand owner's marketing team perspective, it's easy to replace a small distributor, but replacing a large customer, especially a key account, requires layers of approval. With market funds, big customers can also "eat more and take more." Second, from the market perspective, when your volume is large enough, you have a say in the market and gain credibility at all channel levels. Everyone trusts "strong big customers" and is more willing to cooperate. In summary: When a distributor's business grows, they enjoy due treatment, including manufacturer investment and say, market reputation, and the pick of talent. The 16-Character Secret to Reducing Accounts Receivable Few FMCG distributors operate without loans. Borrowing for business capital incurs high interest, so it's crucial to keep funds circulating efficiently. Accounts receivable from credit sales are the biggest killer of efficient fund use. Inventory of Outlets: 1. Regional heads and salespeople will have varying levels of receivables—some high, some low, some good, some bad. 2. Since some control it well, others in poorer regions can also do it. 3. Talk to the best and worst performers separately to understand specifics. Link to Performance: Set a target for reducing receivables, e.g., from 10% to 8% in the first month. Methods to consider: 1. Reward regions and individuals who meet targets, including team and individual rewards. 2. For those who miss targets: delay salary until target is met, or pay base salary but withhold performance pay until collection, or set a deadline with a penalty of 30 yuan per day overdue, with direct supervisors bearing 50%. Restrict Authority: Authority for receivables must be taken back. Frontline staff have no right to execute receivables. Supervisors involved in receivables should also be constrained, e.g., limit amounts or number of accounts, and implement one-store-one-policy with separate ledgers. Track and Check: Regional heads should follow up at daily morning meetings, weekly Monday meetings, and monthly meetings to raise team awareness of receivables and promptly identify and solve problems. Use tables for tracking; post data on the wall after daily work for clarity. Supervisors calculate team averages, mark those above average in red, and those below in green, creating peer pressure. In summary: Receivables are often the last straw that breaks the distributor. Unless absolutely necessary, ensure healthy cash flow; don't borrow upstream while extending credit downstream, worsening already thin margins. Simplify Performance Assessment, Pay Based on Volume Performance assessment should not be static, nor should it change drastically. It should be gradual, turning management into motivation, using human nature as a tool, targeting increases in both sales and profit, respecting employee initiative, and not exploiting their motivational gains. Two assessment methods: One is result-based: setting sales targets and painstakingly tracking progress is a sign of incompetence. One is process-based: setting execution standards and painstakingly tracking implementation is a sign of excellence. In short, don't treat goal tracking as a management method or follow-up technique. In summary: Whether employment or partnership, performance assessment is essential; the core is to increase sales and profit. The principle is simplicity for easy recall; monthly assessments should not exceed three items, focusing on projects with the highest incremental volume and profit. Outlets Are the Lifeline of Distributors Distributors worry: what if the brand owner goes direct or replaces them? Although they don't own the products, distributors have a scarce capability: reaching potential consumers at scale, and the endpoint of that reach is their outlets. Outlets are the cells of the market, needing metabolism. The core of a distributor's business is the efficiency of managing outlets. Sales vary by outlet; visit frequency should favor the rich and eliminate the poor. Cost ratios vary; outlets exceeding cost ratios should be cut decisively. In summary: Distributors must continuously optimize their outlets to achieve efficient, low-cost, scalable, and diversified consumer reach. In plain terms, reduce outlet costs, including visit, delivery, maintenance, and market costs. Cost reduction is necessary for profit improvement. Understand What "Buying and Selling" Means Deep distribution leverages channel-driven capability: first, helping companies digest products; second, using channel expansion advantages to make products "visible everywhere." Its underlying logic is "selling" from upstream to downstream. Deep sell-through is the opposite: building consumer awareness and pulling demand. Its logic is "buying" from downstream to upstream. That's why our ancestors called business "buying and selling." Many distributors have been in business for years without pondering the two words. In fact, distributors all have "selling" capability, but "buying" capability is weaker, which is normal. Because when products reach distributors, brand owners have reserved "buying" expenses for coordinated use. If brand owners don't use these funds, such manufacturer-distributor cooperation is risky. In summary: When selecting products, distributors must pay attention to brand owners' investment in sell-through. The culprit behind distributor losses is often products that don't move after distribution, not that they can't be distributed. So don't be attracted by channel profits (larger initial orders with bigger incentives may be a scam); focus on product turnover rate. Final Thoughts: The essence of profitability is still increasing revenue and reducing costs. Currently, rising raw material and commodity prices have affected many sectors, from manufacturing to energy, coal, gas, and electricity, from industrial products to consumer goods. Price hikes are a trend and unlikely to reverse soon. Distributors needn't complain; the urgent task is to solidify fundamentals per the seven points above, and then find ways to raise prices in sync to ensure channel chain profits. When communicating price increases, remind the team of two things: 1. In talks with customers, don't discuss "whether to raise" but directly "how much to raise." 2. Chinese people tend to buy on rising prices, not falling. Avoid the mindset that prices might drop soon or discounts might continue.