August 21, 2012

3 Business Opportunities To Beware

Filed under: Growing Your Business — Tags: , , , , , — Meredith @ 12:12 pm

If you’re a new to running a business the marketing and sales opportunities can be overwhelming. Which ones are good; which ones are a dead end? Here are 3 popular opportunities you will want to consider with caution:

1. Flash Sale Sites
Why it sounds appealing:
Flash sale sites come in so many flavors these days: you’ve got sites like Fab, Gilt Group, Groupon, Living Social, etc. They’ll often come with compelling promises of promoting your brand to millions of consumers and selling a ton of product for you.

What might be wrong with the deal:
These sites are often looking for a below wholesale price from you on your products and they aren’t looking to agree to a minimum purchase. Meanwhile, they’ll want you to set aside inventory you could be selling at full price just for them, and at the end of the sale they will expect you to turn around and ship your goods out within a day or two and it could be anywhere between a few pieces or thousands — either result can be problematic.

What if they only sell a few units? Are you willing to set aside hundreds of units of product you could be selling at full price on the chance the flash sale will call for them? Are you willing to then part with only a few pieces for below wholesale if the sell-through isn’t great?

What if they sell thousands of units? Is it realistic for you to ship out that volume of inventory with a short turn around? What if they are paying on net 30 terms (which means they pay 30 days after you ship)? Can you afford to produce all that inventory you won’t see money on for over a month?

Why you might do it anyway:
Flash sale sites really vary with their models these days. Some do purchase inventory up front, like a regular wholesale customer. Some give you a longer turn around time to deliver goods. While there are plenty of flash sale sites with unfavorable terms, some flash sale site operators are getting wise to the fact that bad terms means it’s harder to get brands to participate and are offering more flexible terms to woo brands.

If you’re in a position to work with the flash sale site terms and can make it a break even or profitable proposition, the exposure can be a huge boon to a brand owner.

2. Consignment
In a tough economy retailers are looking for ways to cut costs. One way they might do this is by accepting your products on consignment. This means they take your products and you only get paid if the products sell. If the products do not sell you can take them back or leave them on consignment until they are sold (depending on the store). If your products sell you will get, on average, about 50% of the retail price. So if your item sells for $20.00 you get $10 and the store owner gets $10.00.

Why it sounds appealing:
If you are having a hard time getting your foot in the door consignment can be a great way to prove yourself to a retailer. It gets your products in the retail space where customers can see them and allows you to beef up your list of stockists.

What might be wrong with the deal:
I’m not a big fan of consignment; here’s how I see it — I’m parting with a product I can sell myself at full price and trusting a retailer will drive foot traffic, merchandise my goods to sell and then actually follow through on paying me. If all goes well, I’m only getting half what I’d get retailing the product myself. All the risk is assumed by me and the reward isn’t substantial enough. Plus, it’s an administrative headache for me to keep track of which stores have which products, how long they’ve had them, whether they’ve sold or not, etc. For a product like mine, with a relatively low price point (my products all retail for less than $50.00) this nickel and dime game isn’t really worth the hassle.

Why you might do it anyway:
There are really only two good reasons to consign your products:
1. You have a product with a high price point and significant margin, for example an expensive bag or art or piece of jewelry AND you found a retail partner who wants consignment terms but also has a storefront with a significant amount of foot traffic and moves a lot of product. If you have that situation consignment might be worthwhile since your retail partner only has to sell a few pieces for you to make money at it.

2. You have a retail partner you want to work with who is on the fence about working with you. You feel your product would sell for them, but they aren’t convinced. You can offer to consign some inventory with them on a trial basis to demonstrate its sellability — but this is really only worth doing if you expect the retailer will convert to wholesale terms once you’ve proven your product will sell for them.

3. Product Reviews
These days you can’t throw a rock without hitting someone who has a blog, and product reviews are a popular way bloggers like to get “paid” for their work. They’ll ask you for a free sample of your product in exchange for writing a review about it.

Why it sounds appealing:
When you’re desperate for publicity any write up can sound attractive. You might also be wooed by the idea of link building if you’re trying to improve your SEO. Bloggers looking for products to review might try to dazzle you with stats on their blog traffic or the size of their mailing list to entice you, making it sound like a pretty sweet deal. Just send them a freebie and get this awesome plug on a blog.

What might be wrong with the deal:
Most successful/high traffic blogs aren’t spending their time soliciting freebies. They already get plenty of offers and are making their money from advertising, affiliate programs or selling their own products. If a blogger is asking you for free stuff, it’s not really “free” for you. You still have to pay for the product and shipping. If you keep sending out product every time you get a request those costs can add up.

You also have to consider whether the blogger actually has substantial traffic and whether the traffic is targeted enough. We constantly get requests for free product from mommy bloggers with only a few hundred readers who focus on blogging about topics like coupons and living on a shoestring. With our youth apparel at a $25 price point, we know we’re not selling a product that appeals to shoestring budgets. These offers aren’t a good match for us demographically speaking, and even if they were, the readership isn’t significant enough to make it worth handing out free products.

Why you might do it anyway:
If your product’s sample costs are low and the sample requests are coming from media outlets that cater to your target audience you might want to consider ponying up the goods. If you sell a product like food or skincare goods, you can probably package samples in a way that makes them cheap enough to produce and ship to reviewers.

While I wouldn’t recommend giving away freebies to everyone who asks, a review on a site with decent traffic that attracts your target market can be quite worthwhile.

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May 18, 2011

Getting Your Products in Stores: Consignment, Wholesale & Drop Shipping

Filed under: Wholesaling — Tags: , , — Meredith @ 7:29 am

Today I’m addressing three popular ways to get products into stores. Even if you have your own online shop, getting products into stores can be a good additional source of revenue or a great way to get your brand in front of more customers. None of the solutions for getting products into stores is perfect, each has pros and cons.

1. Consignment
When you offer products to a store on consignment, the deal is they take the products and put them in their store, and they only pay you if/when the products sell.

This is a low risk proposition for retailers, which means if you’re having a tough time getting wholesale buyers, this alternative might get a store owner to take a chance on your products. Once you’ve got a proven record of selling your products in their stores, these shops might consider switching to wholesale buying.

The other potential pro, is that the revenue split may be more favorable. With wholesale, shop owners typically get a 50% discount on merchandise because they are assuming the risk. If it doesn’t sell that’s their problem. With consignment, the deal is pretty risk-free for the store owner, and more risky for the designer, thus the designer might only offer the shop owner a 30% or 40% commission on sales.

With consignment, the risk mostly falls to the designer. You are handing over product you might be able to sell on your own, to another business, that may or may not be able to sell it. If they merchandise your items poorly or don’t get much foot traffic, you might wind up with no money and missed opportunities to sell your products for 100% share of the retail value.

If you enter a consignment arrangement, choose the stores carefully. Pick a place with a lot of foot traffic that you think is likely to sell your products effectively. You should also consider limiting the amount of time the shop has to sell your products (for example, they can hold the product for 3 months). Otherwise, they could hold your inventory indefinitely and never pay you a dime.

2. Wholesale
When you sell products wholesale, you typically sell the products to a store owner for 50% off their retail price. Usually the agreement is that you do not accept returns on these items unless there is a defect. In exchange for the discounted pricing, the store owner agrees to a minimum purchase (i.e. 12 units or $500 or 3 case packs, whatever terms you establish).

You are offering your product at 50% off so you need to make sure your production costs and materials are such that you can offer a 50% discount and still be profitable.  Wholesale terms also need to be crystal clear and cover a lot of important details such as exclusive territories, shipping terms, order minimums, etc.

Wholesale is really an enterprise for a more serious business owner. You may need to hire sales reps. You will definitely need to produce buyers packets with line sheets. If your goal is to sell wholesale, talking to an experienced expert on the ins and outs of the process is a good idea. (I recommend Nicole at Retail Minded, if you are looking for a consultant on this subject.)

If you get your wholesale terms right, and your production budget is structured such that you can afford to offer a 50% discount, wholesale can be pretty profitable and low risk. Your wholesale buyers are usually guaranteed to not send returns, spend a minimum amount of money and they are likely to be repeat buyers if you’ve got a good product that sells well.

The other nice thing about wholesale is that your buyers will tell you exactly what they want and how much of it. With retail you have to produce products based on guessing what you think retail customers will buy. With wholesale buyers, you know exactly what they are buying, so you can plan your production accordingly.

3. Drop Ship
Drop ship is an arrangement that works best with custom made items or online boutiques. With this arrangement the store doesn’t actually hold your products. They may have a sample or two, but the products that end up with customers remain with you. As the retailer sells the products, you ship them to the buyers and the store owner pays you a commission.

This is a nice middle ground between wholesale and consignment. The shop owner doesn’t have to give you money unless they sell your product. But you don’t have someone else holding product you might be able to sell on your own. It’s a relatively low risk proposition for both parties.

For this relationship to work well, the designer has to be pretty reliable and responsible.  The shop owner’s reputation is in your hands, so you need to strictly adhere to ship times and policies that you’ve agreed to.

You are also parting with a commission to the shop owner (usually 50%), so it may be less profitable than selling your own products retail. On the other hand, the additional exposure you can get having your products distributed in more stores, may make it worth sharing the profits.

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