Where Did the Distributor's Fees Go?

Asking the manufacturer for support is a common practice for many distributors. There are many ways to ask: crying, making a scene, threatening, or like Aunt Xianglin, repeating "Give some support, give some support..." every time the manufacturer's representative visits. Over time, asking for support becomes a habit, and distributors feel uncomfortable if they don't get something, which troubles many salespeople.

Why do they ask?

Actually, it's normal for distributors to ask for fees (it would be abnormal if they didn't). Everyone is a businessperson aiming to maximize their own interests while minimizing costs and risks. Therefore, they try to get as much support as possible to reduce their investment costs and operational risks.

Specifically, distributors ask for fees for several reasons: First, suspicion about the manufacturer's profits. Distributors know how much they earn from selling the manufacturer's products, and the manufacturer knows too, but distributors don't know how much the manufacturer earns from selling to them. Some distributors then suspect: "Could the manufacturer's profit be higher than mine?" This thought makes them feel unbalanced: "I work hard selling box by box, earning only a little per box, while the manufacturer sells me a whole truckload at once and earns a lot. If I don't ask for support, I'm letting them off too easily." Second, suspicion about the manufacturer's policies. Some distributors think: "The manufacturer has hundreds of distributors; can the policies be the same? If you can't even level a bowl of water, how can you level hundreds? The manufacturer must give special support to some distributors, and I'm just an ordinary one who doesn't enjoy these special policies. Since I'm also a distributor, wouldn't I lose out if I don't ask?" Third, shifting responsibility. For markets that require upfront investment from distributors, some distributors are reluctant to spend money and worry that the manufacturer will blame them for poor market operation. So they find an excuse in advance: the manufacturer's investment is insufficient. They start asking for support early, and if the manufacturer doesn't give it, they have a reason. Because the manufacturer's investment is insufficient, the market launch is slow, thus avoiding the distributor's own responsibility. Fourth, some distributors use this as a stepping stone for other requests, like a diversion. For example, a distributor asks the manufacturer to subsidize tens of thousands of yuan for promotion staff, which the manufacturer naturally refuses. Then the distributor changes the topic: "Well, if you can't cover the promotion staff cost, I'll invest myself, but can you at least cover the few thousand yuan management fee?" In fact, the distributor only wanted the management fee. The last and simplest reason is that asking for fees costs nothing—just a few words (not even a written application). Every time the manufacturer's representative comes, they ask. Even if they don't get it, there's no cost. Even if they ask a hundred times, if they succeed once, they've gained.

Where does it go?

As for what they ask for, it varies widely. Of course, money is best—direct market expenses or offset goods, which distributors like most. Then there are personnel support, advertising or promotional activity support, gifts, promotional materials, etc. In short, anything they can get from the manufacturer is good, even packaging cartons. As long as they get it, it's a gain.

However, once they get support and fees, how they use them is not the most important thing: the sheep is already in the pen; whether to roast or boil it is their own business. Promotional items or gifts with commercial value are often sold directly; unsold promotional materials are often "collected" by distributors (they think using them is wasteful). I've seen astonishing amounts of promotional materials in many distributors' warehouses, many of which have been stored for a long time: bundles of POP stuck together, unused promotional display racks starting to rust, rolls of cloth banners becoming moldy. Now some scrap dealers know to regularly visit distributors' warehouses to buy these promotional materials from manufacturers. In some cities, there are even scrap recycling businesses specializing in buying manufacturer gifts. The promotional items and gifts that manufacturers designed and produced with effort and money are sold cheaply by distributors. Some distributor bosses think that using these items requires labor and cost, so it's better to sell them quickly and get whatever money they can. Of course, manufacturers criticize this behavior as typical small-peasant thinking, focusing only on immediate petty gains, ignoring market operation and cultivation, and affecting the manufacturer's terminal display, unified promotional activities, and brand image.

What about the market expenses allocated by the manufacturer? Many directly become the distributor boss's profit. As for the usage and reimbursement procedures, receipts, accounting, and supervision mechanisms required by the manufacturer, that's a piece of cake—easily handled.

The various physical items or financial support given by the manufacturer to distributors, besides being intercepted and sold by the distributor boss, also go to others. For example, the distributor's downstream customers see the distributor boss asking for things from the manufacturer, so they learn to ask the distributor boss for things too. In the end, the distributor boss doesn't keep much, like the monkey that picks corn, only to drop it, ending up with little. Additionally, the distributor's own sales staff also share in the spoils, such as stealing gifts and promotional materials from the warehouse. Since the boss doesn't care about these things and doesn't use them in the market, the employees naturally don't take them seriously either. Some manufacturers don't care either; they give what the distributor asks for, feeling they've done their part, and don't monitor how the distributor uses these materials and funds.

In summary, a significant portion of the financial and material support from manufacturers to distributors is wasted, hoarded in warehouses, stolen by employees, or taken by downstream customers. Not much is actually used in the market. But distributor bosses don't care: since they didn't pay for it, they'll just ask for more. It's like a bottomless pit; manufacturers invest year after year, but this investment has no cumulative effect. Moreover, this so-called market investment can never satisfy distributors. Some manufacturer salespeople also take the easy way out: when market operations are difficult, they don't think of solutions but ask headquarters for policies and fees, or help distributors ask. This leads to increasing market expenses year after year, with worsening input-output ratios, but they can't stop investing.

How to reduce waste?

It's suggested that manufacturers conduct investigations and take measures based on actual conditions; otherwise, the current routine investment is a vicious cycle that will continue to drain the manufacturer's limited market budget.

First, conduct a baseline survey: of the fees and materials given to distributors, how much is hoarded in warehouses, how much is sold, or taken by downstream customers? How much does the distributor boss actually keep?

Second, show the distributor the calculation, prompting the boss to calculate: where did the support from the manufacturer go, and how much did the boss actually earn?

Third, remind distributors: the things you worked hard to get, you didn't actually keep; it was a wasted effort, and you also cultivated the habit of asking among your employees and downstream customers. When problems arise, they don't think of solutions but wait for support and policies. Once support is gone or reduced, the market will definitely fail.

Fourth, divert the distributor's attention. The manufacturer gives policies and support to help distributors sell more and earn more, but due to the distributor's limited management and operational capabilities, waste is severe, and comprehensive costs remain high. As a result, the distributor's actual profitability still doesn't improve. In this situation, giving more support and policies is only treating symptoms, not the root cause. For these distributors with limited operational and management capabilities, what they really need is knowledge and technology; knowledge and technology can save money and solve current practical problems. Therefore, manufacturers should guide distributors to solve problems through the introduction of knowledge and technology, rather than by investing more money.

Fifth, clearly instill this idea in distributors: in cooperation between manufacturer and distributor, the manufacturer naturally cares about the distributor's profitability, but there are many ways to increase profits. Selling promotional materials or gifts, or directly intercepting fees, is like picking up sesame seeds and dropping the watermelon; it doesn't earn much, and it also fosters the habit of asking among employees and downstream customers. In the end, when the accounts are settled, the distributor boss is left with empty joy, and both parties lose.

-END-

China's best FMCG distributor learning platform Focusing on providing professional, practical, and actionable tutorials for enterprises and distributors Committed to helping Chinese FMCG distributors grow rapidly

The most professional and practical knowledge base in the FMCG industry