Recently, I held a private board meeting with a brand's manufacturer and distributor. The manufacturer is the producer of the product. The distributor is the intermediary responsible for a region (such as a province). The manufacturer sells products to the distributor, who then sells them to dealers at retail stores. During the meeting, I raised a question: What exactly does a distributor rely on to make money? Hearing this, everyone almost immediately answered that distributors make money from price differences. I said, that's correct. But there are two angles to this question: one is the profit model, and the other is the business model. The distributor buys goods from the manufacturer and sells them at a markup to dealers at stores; the distributor makes money from the price difference. This is the distributor's profit model. The profit model is where profits come from. There can be many profit models; besides earning price differences, you can also charge service fees to stores. But the most critical question is not whether you earn a price difference or service fees. Rather, what exactly do you rely on to earn this price difference? This is the business model. So, what exactly do you rely on to earn this price difference? Everyone fell into deep thought and began a very interesting discussion. -01- Some said, I can earn a price difference because I have resources and a particularly good relationship with the manufacturer. Some said, I can earn a price difference because I have a particularly good team that is invincible in battle. Some said, I can earn a price difference because I have always provided the best service to stores. ...... I said, these reasons sound reasonable, but in my view, they are far from enough. Why? Let me tell you a story. I have a friend in the tourism industry. He secured the agency rights for a European airline's tickets in China. Specifically, it's equivalent to him chartering several flights' worth of tickets from the airline and then selling them in China. Of course, he doesn't sell tickets directly to users, but to agents on platforms like Ctrip. So, what does he rely on to make money? From a profit model perspective, he buys tickets at a low wholesale price and sells them at a higher price to agents. He earns the wholesale-retail difference, which is the difference between the wholesale price and the retail price. From a business model perspective, why can he earn this wholesale-retail difference? Over the past decade or so, Europe has not always been particularly peaceful. There have been strikes, refugees, terrorist attacks, or sudden deterioration in relations between China and certain countries. At such times, a large number of tickets to China or other countries face the risk of not being sold. What is risk? Risk is uncertainty. Because of great uncertainty, these airlines sell all their tickets in bulk to intermediaries at very low prices well in advance, such as a year or six months ahead. Why don't airlines retail tickets themselves? In the absence of any risk, airlines could sell tickets well on their own. But because of great uncertainty, airlines cannot predict whether an event might occur in Europe in the coming year, leading to unsold tickets. Therefore, airlines prefer to sell all tickets in bulk to intermediaries at low prices well in advance. What the airlines sell off is actually the risk that might arise in the future. One year, my friend encountered a problem. He had chartered all the airline's tickets for that period. But suddenly, a major unexpected event occurred in France. As a result, a large number of tickets between China and France became unsellable. Almost all tickets already sold were refunded. He was in great pain and went to negotiate with the airline, asking if he could return the tickets since people couldn't go to France. The airline replied, of course not. The airline staff privately told him, why do we sell all tickets to you at a particularly cheap price six months or a year in advance, allowing you to earn the wholesale-retail difference? It's because we are unwilling to bear the risk. If you can control the risk, or are willing to bear it, then you can earn this wholesale-retail difference. The wholesale-retail difference is the insurance premium for bearing the risk. He suddenly understood. Only with a diamond drill can you take on the porcelain work. In their industry, the diamond drill is the ability to accurately predict risks and quickly handle them. Without the diamond drill, when risks don't materialize, you still appear to make money. But in essence, you are making money by luck. You just happen not to have encountered risks. -02- After hearing this story, let's return to the initial question: What exactly does a distributor rely on to earn the price difference? After rethinking, some said: As a distributor, I can earn a price difference because I have developed a large number of scripts and trained many promoters, sending them to downstream stores to help sell products. I said, yes, that is your true core competitiveness. Ordinary stores might have a conversion rate of 3%, meaning 3 out of 100 people entering the store make a purchase. But you are different because you have the specific ability to train promoters; after sending them to stores, the conversion rate increases, say to 6%, and your profit doubles. So what do you rely on to make money? You rely on your sales staff to increase conversion rates. Another distributor said, I can earn a price difference because my capital turnover rate is high. Others invest 400 million yuan and do 800 million yuan in business a year, with a capital turnover of 2 times, while my turnover is 7 times, so I earn more profit than others. I summarized, you earn money from capital efficiency. What is money from capital efficiency? It means your management efficiency of capital has reached a high level. Suppose the industry average is that for every yuan of goods sold, the profit is 10%, earning 0.1 yuan. If capital turns over 2 times a year, that means for every yuan sold, you earn 0.2 yuan a year. What if you turn over 7 times a year? For every yuan sold, you earn 0.7 yuan a year. With the same yuan invested, you earn 0.7 yuan, while others earn 0.2 yuan. So, you rely on capital turnover efficiency to make money. Another distributor said, I can earn a price difference because I have 500 downline members in my community, each of whom can drive significant sales. I also cooperate with many institutions, such as real estate developers, to sell products, and I can continuously find partners. I said, that's right, this is your core competitiveness. You always have the ability to continuously find low-cost traffic. Others have higher costs for acquiring traffic, while your costs are lower; you earn the difference in traffic costs. So, you rely on continuously finding low-cost traffic to make money. Another distributor said, I can earn a price difference because I have built a membership system; after consumers buy products at stores, they can make repeat purchases through the membership system. I said, exactly, this is your core competitiveness. What are you relying on to make money? After consumers buy products at a store, they may not necessarily return for repeat purchases. But with a membership system, you can frequently reach consumers, increasing their repurchase rate. Others' consumers repurchase on average 2 times, while yours might repurchase 7 times on average. This means that with the same customer acquisition cost, others can bring in two portions of profit, while you can bring in seven portions. So, what do you rely on to make money? You rely on the membership system to increase repurchase rates. Every distributor has their own way of making money. They all have areas where they are better than others. Next, let's think deeply about a fundamental question. Setting aside each distributor's advantages, what do all distributors ultimately rely on to make money? In other words, why do manufacturers need distributors? Why do distributors exist? Suppose a manufacturer sells a product to a distributor for 100 yuan, the distributor adds 20 yuan and sells it to stores for 120 yuan. The store adds 30 yuan and sells it to consumers for 150 yuan. Why doesn't the manufacturer sell directly to stores at 120 yuan? This is because, for the manufacturer, selling directly to distributors is more efficient. Each province has thousands of stores. If the manufacturer supplies directly to stores, it needs to directly connect with tens of thousands of stores. But connecting with distributors only requires dozens. The manufacturer must have calculated this: when supplying at 120 yuan to tens of thousands of stores, the cost is definitely higher than supplying at 100 yuan to distributors. If the distributor supplies goods to stores at 120 yuan, and it only costs 10 yuan to do so, the distributor can still earn 10 yuan from it. If the manufacturer did this, it might cost 30 yuan. Why would it do it itself? So, the reason you as distributors can make money today is that managing thousands of stores through you is more efficient than the manufacturer managing them directly. Once the day comes when the manufacturer is more efficient than you, it will almost certainly bypass all distributors and cooperate directly with stores. -03- Final Words We say any business relies on people, that's true. Any business relies on integrity, that's true. Any business relies on resources, that's also true. But all people, all integrity, all resources ultimately serve to create a momentum. This momentum is the essence of your ability to make money. We often say, seek momentum from the situation, not blame people. A CEO's true value is to create momentum; momentum is the foundation for your business to exist and for you to make money. These distributors: some make money through higher repurchase rates, some through higher conversion rates, some through cheaper traffic, and some through higher management efficiency. These are all the momentum they create. So, what about you? What exactly are you relying on to make money? Only after finding this thing will you always stand securely on a huge momentum. If you can't find it, the battles you fight are actually uphill attacks from the foot of the mountain. With momentum, it's like standing on a strategically advantageous hilltop, pushing rocks down. You only need the most ordinary soldiers to defeat the most elite troops of others. Find your core competitiveness, and finally you can truly "seek momentum from the situation, not blame people." So, think about it: what exactly are you relying on to make money? Source: Liu Run (ID: runliu-pub), Author: Liu Run Tips will be paid 400-2000 yuan once the tip is adopted.