Don’t overlook any of 6 essential steps
Retailers typically require a 50 percent discount off retail price when buying from a manufacturer and 40 percent from distributors.
BY DON DEBELAK
How will you distribute your product to retailers?
The right solution depends on many factors, but inventors have a bevy of options that include selling in these ways and to these groups:
- Direct to retailers, small retailers and major chains—sometimes at trade shows
- Through distributors, which sell a broad range of products to many retailers; or captive distributors, which sell a broad range of products to one chain of retailers
- Through rack jobbers, wholesalers that lease shelf space at large retailers. The rack jobber buys inventory to furnish products for that space and gets paid by the retailer when the products sell.
- Through your own sales force
- Via manufacturers’ sales representatives—independent salespeople who typically carry 7-10 products that they sell to the same retailer group.
Steps to success
Start with a distribution approach that matches your capability. This includes financial capabilities, how many orders you can afford to build, and manufacturing capability (how many units you can afford to make). One aspect often overlooked is packaging costs. Designing and producing packaging can be a major expense when selling to distributors.
Learn which channels allow you to make money. Retailers typically require a 50 percent discount off retail price when buying from a manufacturer and 40 percent from distributors.
Distributors also need a 30 percent profit margin. If you have a $10 product, the retailer pays $6 from the distributor and you sell to the distributor for $4.20. Make sure the difference between your costs, including packaging, are low enough that you can make money at a distributor price of $4.20.
Learn what your product needs to sell. Will your product sell from a hook with a simple package at a retailer, or will it need a more elaborate package? Will the product need a salesperson at the retailer to sell the product, or will you need a display that highlights your product features?
Small retailers often offer high levels of customer service and sales assistance. You may also need salespeople—either yours, or manufacturing sales representatives to train salespeople.
Identify your target retailer. The previous step helps you identify what it takes to sell your product. You should choose a targeted retailed group that matches the level of support your product needs and matches your resources.
For example, if you have a bike maintenance product and have limited resources, your targeted retailer might be small bike shops. Those shops have dedicated, knowledgeable salespeople, and you can expand the areas you sell to in a manner that your resources can support.
Consider your options in selling to the targeted retailer. You should first interview several owners or buyers at several of the targeted retailers to see how they decide on what new products to try out.
Some may attend trade shows; others may rely on sales reps that call on them; others might only get leads on new products from trade magazines. The way your targeted retailer buys will vary tremendously, based on your product.
Learn what types of buying incentives targeted retailers expect for a new product. While conducting interviews, also ask what kinds of terms they typically get for a new product. They may need you to take back unsold inventory after 90 days, or expect 60-90-day terms, or request an advertising allowance of 10 percent to 15 percent to promote your product in local media. They may also expect a point-of-purchase display or other in-store promotional materials.