Making deals and turning profits requires smart negotiating skills
By Jim DeBetta
If you are fortunate enough to have a major retailer accept your product for, you will be sent various forms to complete and you are responsible for understanding the terms they present in this agreement.
Agreeing to the retailer’s terms and conditions is key to quickly obtaining that coveted purchase order. However, these terms can be overwhelming to comprehend and negotiate. Retail buyers assume you know what many of the terms mean, including co-op allowance, guaranteed sale, advertising allowance, chargeback allowance, slotting fees, placement fee and EDI capability.
The buyer already may have your price of the product you are offering for sale in its stores. If you gave the buyer your absolute best price to encourage them to buy, you may be in trouble. The goal of being in business is to earn a profit. If your quoted price allows you to earn just a tiny profit or worse, break even, then you may actually lose money on the deal, as the buyer is now asking for financial assistance in order to secure the deal when he asks for allowances and concessions in the setup forms.
Buyers know that they often can get you to lower your price. They typically will wait for you to quote them a firm price early in the negotiating stages. Then, they hit you with these extra requests for price concessions. What do you do?
Losing money shouldn’t be an option, even at the expense of finally landing your first major retail account. No exposure is worth losing your shirt over. Here is what you need to do and what to be aware of:
– Ask the buyer if he needs any concessions before you quote a firm price.
– Negotiating is a dance. Don’t let the buyer lead the whole way. If you don’t ask questions, you will be the loser and they easily win. Some of the most commonly requested allowances a buyer asks for are co-op (advertising fund) and defect allowances.
– Concessions are always negotiable. Most buyers look for about 5 percent for assistance with advertising. My experience has almost been that they will accept 1 to 2 percent. When filling out the product information forms, just put in 1 percent and see what the buyer says. Often they say nothing and you just saved yourself a lot of money.
– Buyers are told to ask for these concessions. They are often a profit center for the retailer. They make enough money and you need to make enough money to successfully grow your business. Saying no to most or all of these concessions will not spoil the deal in many cases.
– Reserve a percentage you can live with. In order for you to make a profit and to satisfy the buyer, intentionally leave some money aside so you can create this win-win scenario. For example, if you wish to earn $20 for each widget you sell, leave a few dollars of room so you can give some concessions. Example – your bottom selling price is $80. Start with an offer of $100 to the buyer. If the buyer insists on a collective 10 percent for various concessions, you will wind up settling on a price of $90 – 10 bucks more than your bottom price. You should attempt to negotiate the 10 percent request from the buyer and counter with 5 percent. If he agrees, you now get to keep an additional $5 per unit for a total profit of $15.
There are many terms and conditions you need to be aware of and learn about before filling out these forms. Moreover, understanding which concessions are truly important to the buyer may potentially save you thousands. Sometimes, buyers will not negotiate these concessions and may even require them, so always price your products appropriately and be ready to haggle.
Buyer’s Glossary
*Co-op or advertising allowance – retailers request a percentage (up to 10 percent) from you to help defer their costs to advertise your product.
*Guaranteed sale – when a retailer asks you to agree to take back your product that does not sell. This would be outlined in a purchase order.
*Chargeback allowance – when a retailer deducts money from what they owe you when you don’t comply with their rules for shipping on time, packaging your product properly, and almost anything you do that causes a disruption in the retailer’s business.
*Slotting fees – what retailers charge to place your product in their stores.
*EDI capability – An electronic method used by retailers to handle most correspondence with a vendor, including issuing purchase orders and handling returns.
Contact Jim DeBetta at [email protected]
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Do not get involved with these two companies– Davision Invention or InventHellp(ISC formerly)
Don’t send anything to anybody without a non-disclosure agreement. And don’t publicly show your invention or whatever if you intend to get a patent – if you do, make sure you file within a year of publicly showing it.
If you need some advice, do a Google or Bing search for Jack Lander. He’s a great guy.
If you need some clarification about Edison Nation’s terms, I’d call or e-mail them.
There are some out there who claim you can “make millions” by selling your unprotected ideas. I believe this to be hogwash, but am willing to be proved wrong.
Hope that helps.