7 replies to this topic

[siringo]

I've been building and selling my own brand of XYZ's since January this year and they have really taken off. So much so that I have been contacted by 2 XYZ stores in 2 states who want to resell my XYZ's.

I've kept the price of my XYZ's down to a level that I feel is a fair price for them with regards to the cost of the materials and the labour I spend making them. Actually they are about the cheapest XYZ's I've found on the Internet but they are definately not the worst quality, they are as good as any other XYZ and better than most.

This is my problem. The price I have put on my XYZ is not high, it makes me some money, not alot but some, I'm a bit wary of charging too much as I don't want the sales to dry up (I'm actually using the Microsoft method of getting products out there. Give 'em something good, for free or very cheap. Flood the market, wait until they can't do without it and then start charging more).

Anyway, I want to get these stores reselling my XYZ's as I see it as a great step in the right direction to build my business, but the problem is, I am charging so little for my XYZ's that I can't afford to sell my XYZ's to the stores who have approached me, for less than I sell from my website, as I would be just about giving them away. (I hope that makes sense).

For the stores to make any money they would have to sell my XYZ's for so much, that their customers would buy someone elses XYZ's and we would both miss out.

Orders for my XYZ's have been increasing every month for the past 4 - 6 months. I want to build my business but don't want to give away my product to a store who is going to make more from them than I will if I sell them to the store.

I've come up with a few ideas which involve more work on my part, but I'm really keen to hear from the experienced folks around here. I've got alot of experience in a lot of different areas, but building a business isn't one of them.

Many thanks in advance.

[siringo]

I'll just add this as well. Here's an example.

Let's say I'm selling my XYZ's for $60.00 and making $30.00 per XYZ. A store wants to resell my XYZ's. We agree that they can buy my XYZ's for $50.00 each (now I only make $20.00 per XYZ). The store then resells my XYZ's for $95.00 each. They make $45.00 per XYZ.

It doesn't really bother me how much the store will make, but it bothers me that I make $10.00 less per XYZ I sell to the store.

And another thing. The initial quantities these 2 stores want to buy is about the same amount of XYZ's I'm already selling per week. As an example, lets's say they have said they will buy 10 XYZ's a week and I'm already selling 10 XYZ's a week on my own.

What should I do??

[rolf]

It doesn't really bother me how much the store will make, but it bothers me that I make $10.00 less per XYZ I sell to the store

I think this is the crux of the matter. It's not an unreasonable position on your part, this is a common situation and the answer is partly practical, partly philosophical.

I don't know what widgets you make, but I'm assuming you have suppliers for the materials from which to make your widgets. As your sales go up and your order sizes increase you should be able to negotiate better prices with your current suppliers, or find new suppliers that specialise in supplying in bulk. This will offset the hit in profit per item to some extent.

One of the businesses I'm involved with began with materials bought from a local shop every couple of weeks. As sales went up we started buying in larger amounts and got slightly better prices from a wholesaler. Now we buy every 6-12 months directly from manufacturers, which means a little more money tied up in stock but the savings are huge - we're paying about 10% of retail for some things.

The other part (which is the partly philosopical bit) is that you have to look at the bigger picture. You may make $10 less per item, but you're making 20 extra sales per week at $20 profit per item - ignore the profit per item and work out if the extra $400 profit per week makes sense for the hours put in.

This may hit your hourly rate too significantly to be comfortable, and if that's the case then you might want to look at charging a little more (both for retail and for wholesale) or take the longer term view of taking the hit for now so you can gain your customer base and increase the price later.

JMHO, hope it helps.

[siringo]

I think this is the crux of the matter. It's not an unreasonable position on your part, this is a common situation and the answer is partly practical, partly philosophical.

I don't know what widgets you make, but I'm assuming you have suppliers for the materials from which to make your widgets. As your sales go up and your order sizes increase you should be able to negotiate better prices with your current suppliers, or find new suppliers that specialise in supplying in bulk. This will offset the hit in profit per item to some extent.

Yes, I've thought of that, but I'm not sure if the quantity of the material I purchase from my suppliers is large compared to their other customers or small, as if I am only a small fish in a large pond I wont have much oomph in making them lower their price. How can I find out how large a customer I am? I guess I should just ask them.

One of the businesses I'm involved with began with materials bought from a local shop every couple of weeks. As sales went up we started buying in larger amounts and got slightly better prices from a wholesaler. Now we buy every 6-12 months directly from manufacturers, which means a little more money tied up in stock but the savings are huge - we're paying about 10% of retail for some things.

This is what I would like to do, but the material I use is imported.

The other part (which is the partly philosopical bit) is that you have to look at the bigger picture. You may make $10 less per item, but you're making 20 extra sales per week at $20 profit per item - ignore the profit per item and work out if the extra $400 profit per week makes sense for the hours put in.

I've thought of this as well. If I sell to the store and they don't sell, well I've made money I may not have made had I not sold to the store. I think this may be the one thing I need to think about the most.

This may hit your hourly rate too significantly to be comfortable, and if that's the case then you might want to look at charging a little more (both for retail and for wholesale) or take the longer term view of taking the hit for now so you can gain your customer base and increase the price later.

Yep, again, I've thought of that as well.

JMHO, hope it helps.

Thanks very much for a well thought out reply rolf, I appreciate you taking the time to post. It has helped as I can see that other people do think the same as I do, so I mustn't be too far off track with my thinking.

Thanks again.

[Randy]

This is what I would like to do, but the material I use is imported.

Ordering in higher volumes, even if less frequently, may save you even more money on the cost side of things then. Having been in the import/export field in another lifetime I can tell you there are certain fixed costs involved, ones which don't change much if any at all no matter if it's a $20 order or a $200,000 one.

Of course there is some risk involved in stocking more inventory, especially when the inventory is the raw materials used to create a product. So you'll need to weigh this risk. Possibly based upon what kind of monthly or biannual or annual purchase your new outlets will commit to purchasing.

I do think you have an excellent pattern to be in though. If you're already selling the same or a superior product as your competitors it's quite possible you may be able to raise your MSRP a bit and still give the new wholesale buyers a good deal where they can make some money too. It would be a much tougher prospect if your costs and mark up had you at or above your current competitors.

[siringo]

Well I made up my mind on the weekend and on Monday I sent an email to the 2 stores that want to sell my XYZ's. To cut the story short, I now have 2 stores reselling my XYZ's. I must admit though, they will be selling them as their own branded XYZ's, but that doesn't bother me. I hope they sell thousands of them.

I can't believe how quickly all this is moving.

[Randy]

Here's hoping it all works out as best for you (and the retailers) as it possibly can Matt. Hopefully their orders blow your doors off so that your next worry is how to ramp up your production because they're ordering too much.

As for this...

I can't believe how quickly all this is moving.

That's how it works with you produce a quality product or service, one that people really need and can benefit from. I've seen it happen too many times to question the speed with which stuff happens or the price some are willing to pay anymore. I've decided to chalk it up to sometimes we underestimate what we have because we're too close to the project.

[thetraveler]

This is a very common problem most businesses face. In the end you just have to settle on a price that you feel is both fair for you and to your customers. From there, you can see how it is going and adjust it up or down accordingly. Just accept that you made the best decision you could at the time and move forward. You'll find that sweet spot eventually.

It sounds like your doing great. Best of luck!