Distributors.

Son, 

When you want to expand the sales revenue of our business by selling through Distributors globally, you will experience another transition from ‘INDIVIDUAL’ to ‘GROUP’.  

As we have mostly sold direct to Window Cleaners around the world, and now we want to add Distributors, we must manage the transition carefully.  There is a risk of having a ‘busy business’ that is not profitable.

How do we easily calculate the impact of selling through distributors compared to selling direct?.  As our customers are Window Cleaners and one day you may want to share this lesson with them, I am going to add the parallel for a sole-operator cleaner, going to a multi-truck operator.

Let’s start with some simple maths using a basic formula with numbers that divide easily: 

As a SOLE OPERATOR (or sole seller/delivery unit), I sell my product or service for $100.  My COGS (Cost of Goods Sold) is $25, so I have $75 Gross Profit (the difference between the sale revenue and the actual cost to provide the product/service, not including the cost of ‘running the business’).

This $75 profit is also called 75% MARGIN - both are based on the revenue.  If we take the same figures but use the COGS as the base point, it is called 300% MARK-UP, being the multiples of COGS added to make the sales price, as a percentage. (($100-$25)/$25)x100.

Let’s say I get a DISTRIBUTOR… and the DISTRIBUTOR wants 50% MARGIN - now my sales revenue goes from $100 to $50, and my MARGIN goes from $75 to $25.  My MARK-UP goes from 300% to 100%.  For a Window Cleaner, this is like putting on another truck and one/two workers - for the purpose of this example, costing $50 per hour of their $100 per hour charge to customer. 

If all your customers bought from your Distributors and assuming you need to make THE SAME GROSS INCOME ($75) from these Distributor Sales as you were selling Direct, how many sales does your DISTRIBUTOR need to make to replace your original income?  Direct, you were making $75GP. With a Distributor, you need to make 3 x $25 - or THREE TIMES THE UNIT SALES. 

To solve this, a Distributor must go and get unique customers that you would not have got, and you keep selling to your existing customers. Then the DISTRIBUTOR SALES is additional revenue, and all is good. 

Similarly, if marketing can find new customers for a new Window Cleaning team, and, for now, the Boss keeps servicing most or all of his existing customers, he is also fine. The TRANSITION TO GROUP is not complete until you have a fully delegated income GREATER THAN the needs of the business.  Once you have achieved this, you can go full tilt at SCALE.  Blow it Up !

Dad.