The margins offered to distributors by most companies are in terms of percentage, directly linked to the price of the product. In case of an increase or decrease in price, the margins in absolute rupee terms also vary, regardless of the factors affecting the price change. If the cost of distribution is a factor affecting the price, change in the distributor's margin is justified. But if the price change is due to other factors, then increase or decrease in the distributor's margin is difficult to justify, unless the distributor's investment, revenue expenditure and business volume are also considered. The author, in this article, proposes a comprehensive `Unit Rate' model for calculating customized distributor margins that takes into account the above factors.

A survey of about 25 distributors of FMCG products in the city of Nagpur revealed that the distributors get their margins in some percentage that is directly proportional to the price of the product. These distributors deal in multiple brands in the same product category. The only difference was, some margins were calculated on markup basis, whereas some were markdown. The distributors were not even aware as to why a particular percentage was offered to them, and why not higher or lower. Although they had their own calculations about their estimated gross margins and net margins, there was no systematic evaluation of the fund flow in the entire distribution process. Given a particular gross margin, the estimated net margins differed from distributor to distributor, and there was little to justify their estimates. As a result, some distributors were overspending on their operating expenses, whereas, some others were underspending even to the extent of affecting the quality of service and thus resulting in loss of sales.

Marketing Mastermind Magazine, FMCG, Fast Moving Consumer Goods, Gross Margin, Internal Costs, External Costs, Working Capital, Marginal Revenue roductivity, MRP, Return on Investment, ROI, Recurring Expenses, Credit Cycle, Value Added Tax, VAT, Unit Rate System.