9/18/13Share 1 FMCG Gyaan and then some: Calculating Dealer ROI More Next Blog» Create Blog Sign In FMCG Gyaan and then some Th u rsd ay , Ju n e 14, 2012 Follow by Email Calculating Dealer ROI This post is co-authored with my good friend Nishit Ganatra who is currently the ASM of Punjab, J&K for CavinKare. He interned with me at L'Oreal and graduated from XIM, Bhubaneshwar. He enjoys troubling the Pakistani army by attempting to cross over the border from time to time and is giving their economists nightmares as he contemplates to sell Chik shampoo across the border owing to the kindness of his boss.You can find him here. So probably the first thing that your distributor/dealer/stockist is going to tell you when you go to him for the first time is “Sirjee, ROI nahin baith raha hai”. What this simply means is that he is challenging you to calculate his return on investment. This is sort of a monthly exercise – he knows that he is getting an ROI, else he would not be in the business. What he simply needs is some ego massage so that he gets an ILLUSION that he is in control of something when he is not – your rates are fixed, your schemes are fixed, and so are your claims. While ROI is something that they teach us in first day of BSchool, calculating dealer ROI might be a different ball game altogether as he is a weasel who is going to try different permutations and combinations to get the better of you. Do this properly with him, and he (and you BDE/TSO who is twice your age but earns half as much) will respect you forever. The equation is simple – Return/Investment, Return = (Earnings – Expenses). The trick lies in realizing what earnings, expenses and investment involve & it is here where the dealer uses his tricks. Let’s put down the formulae first: a. b. c. RoI or Return on Investment = Returns/ Net Investment Returns = Earnings – Expenses Earnings = Gross Margin that the dealer enjoys (Usually 6% - 8% in FMCG companies) Expenses = Direct Expenses + Indirect Expenses 1. Here is where the first trick lies, Calculating Expenses: Email address... Submit Total Pageview s 36943 There was an error in this gadget Popular Posts Calculating Dealer ROI This post is co-authored with my good friend Nishit Ganatra who is currently the ASM of Punjab, J&K for CavinKare. He interned with ... Understanding Price Calculation & Trade Schemes in FM CG Time to absorb some basics on FM CG Pricing and Trade Schemes – something that prominently differentiates FM CG from other sectors and yet... Glossary of basic sales terms I should have probably written this first, but better late than never. I have received a lot of feedback, and most people have said that... 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Consumer Brands Convergence To all those who are following this, sorry for the delay - both of us have been horribly busy at work, but we'll post 2-3 more article... d. This arises from the fact that the dealer in question is not dealing with just 1 company, he instead has 4-5 or even more number of companies that he is dealing with. Hence there are some resources that he is exclusively using for a particular company for eg. Sales Man and similarly many resources that he is sharing among the companies eg. His godown space, accountant, supply units etc. Please note there is no thumb rule to it as there might be (and more often than not, will be) cases where even salesmen are being shared among 2 or more companies, and there will be one guy who would be the accountantcum-manager-cum-supply wala etc. This is where the concept of direct and indirect expenses comes in. Hence his expenses are split in to 2 parts i.e. Direct & Indirect Expenses Direct Expenses are those that the dealer incurs exclusively for the company concerned. And Indirect Expenses are those that the dealer incurs in totality for the companies for whom the resource/s is/are being shared. The only rule in calculating expenses is that you need to take into account the part of expenses that he is incurring for your company alone. We will see how we do it below. gyaanokplease.blogspot.in/2012/06/calculating-dealer-roi.html 1/6 per month.000 5.8% in FMCG companies) Expenses = Direct Expenses + Indirect Expenses big6 (1) brand management (4) br ands (1) conver gence (1) (1) gyaan (1) innovation (1) fmcg (9) glossar y introduction (3) Jugaad (1) marketing (6) Rate (3) ROI (1) Sales (5) Tr ade Mar keting (1) tr ivia (1) gyaanokplease.00.50. Is worth 10.’s Company Margin: 8% Average Market Credit for ABC Pvt Ltd. Is 10. Ltd.50.500 which is lesser than the previous result and hence his investment goes down and RoI goes up.per month.000 2.00.000 4. or worse if you do the mistake of asking the dealer what his closing stock is. i.000/.per month.per month per salesman.000 CLOSING STOCK 4.000 PRIMARY 50. Is one for which we need to calculate the RoI.e.50.50. Hence going by the formula: RoI or Return on Investment = Returns/ Net Investment Returns = Earnings – Expenses Earnings = Gross Margin that the dealer enjoys (Usually 6% .000 2. In this case it would come out to be as : ( 4.50. the firm also has an accountant-cum-manager with a monthly salary of INR 5. The firm has 1 dedicated (exclusive) salesmen working for ABC Pvt. Ltd is worth 2. FMCG Gyaan and then some: Calculating Dealer ROI Similarly the second trick lies in properly calculating the denominator.50.000 + 3.000 + 3. i. Average Market Credit that he extends & Average Claims Outstanding. Claims Outstanding Here the usual suspect where one may go wrong in calculating Investment is the first variable i. Enough of this gyaan now. Investment = Avg Closing Stock + Avg Market Credit + Avg.50. His firm deals with distributing 4 companies in total of which ABC Pvt.blogspot. All figures are assumptions Monthly Business (Turnover) inclusive of all 4 companies: 20.e Net Investment.12.000/.000 3.) to the tune of INR 5. Hence. The better way to do it is to take an average of all 4 weeks’ closing stocks.000 Share this on Facebook Tweet this View stats (NEW) Appointment gadget >> Blog Arc hive ► 2015 (1) ▼ 2012 (12) ► December (2) ► November (1) ► October (1) ► September (3) ► July (1) ▼ June (3) Consumer Brands Convergence Rate Ka Chakkar Calculating Dealer ROI ► M ay (1) Searc h This Blog Search Labels Basics (4) The above table is how a dealer’s inventory in a typical FMCG set-up would behave like. incurs electricity & miscellaneous costs (supply units.50.00. the beast would tell you a figure which will be his all time high closing stock in a month.00.html 2/6 .000 (Week-4 Closing Stock) as the average closing stock for that dealer in that month.000 + 5.50.000 2. LTd.INR Average Closing Stock for ABC Pvt.000) / 4 which equals to 4.000/.e.50.00. The typical trend in FMCG is that majority of Pushing.in/2012/06/calculating-dealer-roi. chai-paani etc.00. A layman would take the month-end closing stock as the average closing stock for the dealer.50. pays a monthly rent for the godown which comes to INR 5.000/.000 1.50. Atul Mittal is the proud owner of his distribution firm M/S Bhagat Ram Jwala Prasad.000/.000 4. Other expenses such as his son’s education and his daughters marriage which your dealer would want to include are not to be included. primary is what your company bills to the dealer and secondary is what your dealer bills to the retailer) Confused?. with a monthly salary of INR 6.000 3. also known colloquially as “thokna” (Primary) and Pulling (Secondary) happens in the last week and therefore the last week is not a true indicator of the entire month’s activity then why consider last week’s closing stock as his month’s closing stock. let us get straight down to calculating a sample ROI Premise: Mr. Ltd.000 3.INR. Like? Then please share! A dealer’s investment comprises of 3 parts : Average Stock that lies in his godown. (To clarify.50. we will deal with it with simplicity.9/18/13 2.000 SECONDARY 1.INR Average Claims Outstanding in ABC Pvt.00. Apart from this.00. Ltd.000/. 00. Ltd.000/. Monthly Business (Turnover) of ABC Pvt. Consider this as the trend of Primary & Secondary for a dealer in a 4-week cycle of a month WEEK 1 2 3 4 OPENING STOCK 5.00.000/ABC Pvt.000 5.000/-. : 8.000 3. majority of activity happening in the last week and hence one would be wrong in taking 5. Average Closing Stock of the dealer. 10 times a year. So his ROI is 10*2.1%. Ltd. the net profit % is 2. fmcg.000 Hence Returns = Earnings – Expenses = 64.1. Closing Stock + Avg.70. each time making say 2.000 = .50.000 + 10. 2012 at 11:19 PM Alternatively.one should always check whether he has taken bank loan.000/. For eg: The company gives a margin of 5% on its products to a distributor. if a distributor rotates his investment say.000 + 6. Similarly.00.000 = 12. ROI.000/Expenses = Direct Expenses + Indirect Expenses Direct Expenses = Salary of Exclusive Salesmen = 1*6000 = 6000 per month Indirect Expenses for ABC Pvt.25% Posted by Kaushik at 7:47 PM +1 Recommend this on Google Labels: Basics.000 Net Investment = Avg. Indirect Expenses for ABC Pvt. Claims Outstanding = 2. Reply Replies prashant April 25. and for big distributors this makes a big difference in ROI. a lot of dsitributors conveniently miss out this part of the equation.00. 10 times a year. and his investment is 20L with an annual turnover of 200L.000 = 2.when you look at his investment in stock . Ltd. Sales 24 comments: Anupriya June 14..000 = 52.html 3/6 . multiply that by net profit percentage per rotation. 2012 at 11:33 PM Thanks Kiran! Duly noted. After all his distribution expenses. 2012 at 8:53 PM Thanks Anupriya! Duly noted :) Reply Kiran June 14.000/2.1 = 21% Reply Kaushik June 14. = 40% of 15. Ltd’s Turnover to Total Turnover = 8. Market Credit + Avg. Ltd’s Turnover to Total Turnover) * Total Indirect Expenses Total Indirect Expenses = Godown Rent + Manager’s Salary + Miscellaneous Expenses = 5.. if the distributor has a good overdraft facility then he actually pays for the stocks to the company from that and not his actual investment.000/Therefore Total Expenses = 6. which is = 64.= 6. if he has then his actual capital investment is actually only to the extent of his own money.9/18/13 FMCG Gyaan and then some: Calculating Dealer ROI Let’s calculate each element one by one: Earnings = Gross Margin = 8% of monthly turnover of ABC Pvt. Reply Kaushik June 14. 2013 at 6:59 AM That's a very important point. ROI is easily calculated as under.000 + 10..000 = 15.000 + 5.000=40% Hence. here again interest should be added into his expenses and the investment reduced by the overdraft amount.=( Contribution of ABC Pvt. 2012 at 8:50 PM Just a point here.. rest is interest which is part of expenses. Please feel free to contribute in the further posts also! Reply gyaanokplease.blogspot. Ltd.. No:of rotations = annual turnover/investment = 200/20 = 10 rotations/year Investment = 20 Lakhs This means he rotates his investment of 20lakhs.000/20.000 + 5.000 – 12.000/Contribution of ABC Pvt.000 Therefore RoI = Returns/Net Investment = 52.in/2012/06/calculating-dealer-roi.1925 or 19.70. . Somebody has got to tell these kids that. Also a distributor gives a cash discount to wholesale or even retail. Far simpler than direct...they might not squeal but they do grunt a lot. However. TiTo Reply Capt.and about explaining credit. Cheers. ridiculed me abt not knowing my ROI calculation was the 'push comes to shove' part...... may be we could come up with a post about how to tinker RoI to get back distributor's interest provided he is sitting on a lesser RoI. I would urge you to simplify this and put it up as ur article is crisp and clear and this could prove useful too. A much needed initiative..Krunch June 15.. That my dist. 2012 at 12:05 AM Very helpful..html 4/6 . hw u doing man.. So if Credit = 7 days. Thanks Kaushik! :) Reply Tirthadeep Dhar June 15. 2012 at 11:48 PM Very Well Explained... 7 days of closing stock is deducted from the distributor's investment. but I would rather start by trying and provide some comic relief between intense FM CG sessions :P Reply Amber Verma September 26. would urge you also to contribute.... lets not forget a very important parameter of credit given by the company to the distributor which can range from 0 to anything. points noted dude. Nishit you could share too.. 2012 at 7:02 AM Brilliantly explained . amber verma Reply Kapil Gupta February 8. btw sup with you?) 3)All distributors are swines with hair coming out of all their holes.9/18/13 Sambhav Jain June 14.... jusayin.!Thanks Reply FMCG Gyaan and then some: Calculating Dealer ROI Ashish Shah June 15. about a year back. 2012 at 8:52 AM hey TiTo. (Kaushik you had aced that. so that too has to be accounted for.blogspot. 2012 at 7:15 PM Thanks All of you. Recommendation: 1) Teach them how to calculate a Super Stockist ROI as well. Cheers nishit Reply Tirthadeep Dhar June 15. nevertheless thanks for the feedback. 2012 at 10:47 AM Sure would love to contribute..in/2012/06/calculating-dealer-roi. in your next article you could explain how to get back an uninterested distributor on track based on key parameters. wholesale discount. was thinking abt that while reading the article.Subbu and Nishit! I remember looking for somebody or something to teach me this. 2) Also. 2013 at 4:26 AM gyaanokplease..the upcoming posts will only highlight the point number 3 that u ve mentioned. we intentionally didn't go into the detail to avoid it from getting complicated.. re. Nishit you could elaborate I guess (this inference from ur fb statuses) And excellent explanation Kiran. .. 2013 at 12:06 AM very helpful..... 2013 at 6:27 AM avik das.. not from fmcg background) Reply jjkljlj July 23... then average market credit would be 75% of inventory. if market credit is given for 7 days....... Could you plz explain it why. David Reply Rhishabh Surit June 28. 2013 at 10:51 AM Can anybody exactly explain followingper month Sales: 10 Lac M argin: 3% Inventory: 2... 2013 at 11:32 PM davidraja... Reply Ankit Dwivedi April 12... thanks... 2013 at 1:45 PM This comment has been removed by the author..for explanation of ROI insuch a way..thanks.5 lac M arket credit: 2.2% case 3: roi can't calculate.9/18/13 Realy good explained .1% (guys plz correct if im wrong . 2013 at 3:43 AM same doubt I have also. ROI is 19. 2013 at 6:14 AM GOOD explanation.... if no expenses are there then case 1: roi is 6% case 2: roi is 7.blogspot...html 5/6 . gyaanokplease.... 2013 at 9:46 AM thanks dear Reply vibhor srivastav M arch 4.Thanxxxx Reply FMCG Gyaan and then some: Calculating Dealer ROI Robin Godara Bishnoi February 21.2lac.... Reply Davidraja J E Sam June 15....... as per calculation this is monthly ROI but monthly ROI would be 1...5% Reply Replies rajesh srivastava June 20..5-2. hence ROI wud turn out to be 7. Reply avik das M arch 20... because there are no investment. 2013 at 10:32 PM hi Ankit could you please explain the second case.5 lac Case 1: No credit from company to distributor Case 2: 7 days credit from company to distributor Case 3: 30 days credit from company to distributor Pls explain the concept also Thnx Reply Ankit Dwivedi April 12... thus total invenstment wud turn out to be 4.25%.. but one doubt is there in example..in/2012/06/calculating-dealer-roi. 7%...8 % or you can say 7% but how come you came to conclusion that average market credit for 7 days = 75% of inventory cost ??? Reply Replies Madhav August 11.0000 = 30000 so...5 lacs* 7/30~=58300..so for 7 days it's 2.in/2012/06/calculating-dealer-roi. 2013 at 1:24 AM Hi what is the healthy ROI for FM CG Distributors(as u told margin is between 6%-8%)? Is it between 14%-24%? Reply E n t e ry o u rc o m m e n t .. Comment as: Google Account Publish Preview Newer Post Subscribe to: Post Comments (Atom) Home Older Post All rights reserved .37500 margin is 3% of sale of 10..for 30 days.87500 =4...but. chandan kumar bal September 10.. Simple template.stock is 2.87500 total investment would be = 2..html 6/6 . Template images by Bim.I think so. gyaanokplease. roi comes to be 6.5 lac for 7 days market credit = 75% of inventory = 75/100*2.9/18/13 Reply FMCG Gyaan and then some: Calculating Dealer ROI Munish Kaul July 23.5 lacks.5000058300=191700.. Powered by Blogger. Return on investment is = returns/total investment ie : 30000/437500 which comes out to be 6. he has not taken it as 75%. 2013 at 1:52 PM aa you are very close to being right if market credit = 2. 2013 at 2:46 PM I believe.So net investment in inventory=2.50000 = 1. .So.Copyright Kaushik Subramanian and credited authors.blogspot..50000+1. ..
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