Some background: I make handcrafted, custom, pet-related widgets. I don’t have a problem selling them, I sell as many of them as I can make. I usually sell them at dog shows and at upscale handcraft venues. I would like to do less in the way of active marketing, and spend more time actually making stuff.
I have two types of widgets: plain widgets, and fancy widgets. Plain widgets are quick to make and have an extremely high profit margin. Fancy widgets are extremely labor-intensive, so much so that I pay myself an hourly wage to do it, but in order to keep prices reasonable enough for normal people with an average income to afford them, they only carry a small margin of profit to the business.
I have recently had several retailers express interest in carrying my stuff. I am leery of entering a wholesale market because I think there’s a very real possibility that I won’t be able to keep up with the demand, or provide a large, consistent inventory. Also, I can’t afford to wholesale fancy widgets at anything like allowing a 100% profit for the retailer at the prices I’d like to see. Besides, the whole point of the thing is individually handcrafted items. The moment I start having to mass-produce stuff I’ve stepped away from what makes them special in the first place.
Anyway, here’s what I’d like to propose to those retailers. I can keep them supplied with a consistent inventory of plain widgets with a hand-built display that includes a few fancy widgets and a portfolio. They can buy plain widgets at a wholesale cost that allows for 100% profit margin at retail prices. They’d act as a broker for custom fancy widgets, taking orders, collecting payment, and keeping 20%. That way they aren’t losing floorspace to a large inventory, and I can keep my business focused on individual custom crafting. This also allows me to keep doing direct retail as I feel like it.
Does this make any sense? Would you agree to such a system?
No input as to how well that idea would go over, but you might try this as well.
Have your display set up but just have it display your website NajaNiveaWidgets.com
A customer going there could get information about all your widgets but only be able to purchase the custom ones. You’d supply a dealer locator for people wanting the basic ones.
I do already have a website which does a reasonable amount of business with little to no effort at web-based marketing on my part. My products all have the NajaWidgets.com address and logo on them.
I suppose your system eliminates the concept that I’m competing with my retailers, since we’re each selling a different product. It seems to me that the retailer would get upset that I’d effectively be using their floor space to advertise my custom widgets with no cut for them. With the brokerage system, at least they get paid for each custom widget they sell.
As an ex inventory guy and a current business owner, I would say stick to the simple and high profit margin. If you are worried about keeping up with supply, raise the prices a bit. Don’t worry about the retailers profit margin, let them make their own decision as to what will or will not sell at what price point. They usually have a better handle on the demographics they operate in than you anyway.
I would not expect a “commission” type system to go over well
Many stores operate using something called VMI (vendor managed inventory). In many cases the store basically charges you to set up a display of your merchandise and you bill the store for what is used at an agreed upon wholesale rate. You stock and maintain the display. IF this is for local stores it just might work for you and allows you to rotate stock to other stores if certain items seem to be languishing at certain stores.
Could you give us a few specific examples of an item, materials cost, and time involved so we could give you some harder numbers?
If volume gets to be an issue it it something beyond the grasp/cost effectiveness of a $10-12 employee? to make these items.
Yes, I would love that. I was trying to be vague re: specifics because I didn’t want it seeming like I was pimping my business or something, but I’m terrible at the business end of all of this and could really use some advice.
I make leather leashes and collars. Materials on a plain, medium sized collar might cost $3 at the absolute outside with about twenty minutes of labor. A decorated collar is about the same in materials cost but with maybe 2-3 hours of labor, some more.
I could use an employee for the grunt work of cutting straps, putting together tags, setting rivets, and a few other straightforward tasks which would free me up to do primarily sewing and marketing. That would be my next move if things keep trucking along as they are. The sewing and design are pretty skilled tasks and I do it as much for a hobby as a business, so I probably wouldn’t delegate that task even if it could be done by an employee.
Medium Collar materials $3, Labor $10 Say all tools/webhosting/CC fees/marketing/packaging/phones = $5 per piece =$18.00 total cost.
If the item sells for $19.95 you have a basic functioning business.
Any labor you personally perform would probably come out to about $20/hr + bennies if you provide them for yourself.
You could have a little part time employee total cost $15/hr incl taxes * 10 hours a week. They could prep stuff, if that is 50% of your basic collar labor then they can effectively double your production for a cost of 50% of the additional production labor value.
The fancy units are tougher. Lets Say $5 in materials and 2.5 hours in labor…ugh. You are looking at a cost of almost $80. If same employee could prep 50% , you could get that down to an effective $66.25 including incidentals mentioned above giving you a sale price of $79 or so. Pretty steep for a dog collar but YMMV. You would need a pretty ritzy pet place to pull that off consistently.
Don’t forget to add in time spent distributing and or stocking displays in stores if you want to go that route.
Plain collars sell for significantly more, decorated ones slightly less. It works out fine selling at direct retail vendor events because the margin on plain ones is so high, and honestly I enjoy making them so much that as long as I break even on them I’m happy. I’m told I could ask much more than I do for the decorated ones–but like I said, I want people with average incomes to be able to afford them. People like myself. I know it’s terrible business, but there you are. Anyway what it means is that I can afford to pay myself to make them, but with no profit to the business if I wholesale them.
Owners of local pet-boutique type places see my stuff and freak out. One asked me to come by this weekend and bought half my inventory on hand in one shot. That represented something like two months of work sold instantly.
I’m trying to transition over to doing this full-time, so I can quit my part-time day job. Do you think, with what I’ve told you, that it makes any sense for me to be considering selling through retailers? Right now I only have a few days a week to make stuff and sell stuff. If I can eliminate the selling stuff portion of my schedule, I can make a lot more stuff. However, I certainly make a lot more money selling it myself to the customer than I do selling it to retailers, and like I said, I don’t have any problem selling them–at the venues where I sell people practically fling handfuls of cash at me. If I quit my day job, I’d have time to do both. The endlessly practical NajaHusband, who would like to continue paying the mortgage consistently, has a little bit of a panic attack when I suggest it, though.
You are either selling too low or the retailer is a dummy, floow up with the retailer and see how your product is selling? How much of a discount from your normal retail price did you give this retailer? Remember, people expect to pay a little more at the store than online for the immediate gratification.
[quote[I’m trying to transition over to doing this full-time, so I can quit my part-time day job. Do you think, with what I’ve told you, that it makes any sense for me to be considering selling through retailers? Right now I only have a few days a week to make stuff and sell stuff. If I can eliminate the selling stuff portion of my schedule, I can make a lot more stuff. However, I certainly make a lot more money selling it myself to the customer than I do selling it to retailers, and like I said, I don’t have any problem selling them–at the venues where I sell people practically fling handfuls of cash at me. If I quit my day job, I’d have time to do both. The endlessly practical NajaHusband, who would like to continue paying the mortgage consistently, has a little bit of a panic attack when I suggest it, though.[/QUOTE]
#1 Get yourself a subscription to something like quickbooks online and start tracking this for real if you have not already. Once you have 6-12 months of history you will have a real good idea of how much money there is on a month to month basis. This will help convince Navahubby you are A: serious and B: This is already a profit generating enterprise that can cover the bills if need be.
#2 Get Navahubby on board helping for a few hours a week. Save extra money from Navahubby labor to build yourself a working fund.
#3 Once you have enough money for 2-3 months of your part of the bills cut the apron strings and welcome to the world of self employment, we rock. If you are not an offical business, look into it post haste for collecting sales taxes and such. The fines and penalties from failing to do so are totally not worth it when you get caught.
#4 If you really do have a Good thing with a serious profit margin going, look into writing a business plan and getting an SBA loan. With a few thousand to spend on better tools and such you might be able to ramp up your own production without the need for helpers.
#5 Congratulations on selecting manufacturing, adding value to raw materials is one of the best ways to make money out there.
I’m not worried about them, I just like dealing with average pet owners. Also, quite literally half the reason for starting the business was because I couldn’t find a single good quality leather leash in the whole of the US for anything even remotely resembling a reasonable price. Hello, niche! Here I am!
I may be selling too low? I’m making a 200+% profit on nearly everything she bought. She’s bought stuff from me before, a couple months ago as a trial run, and said her customers were really excited about it. I managed a pet store for a few years in college and used similar wholesale pricing. I gave her plain stuff for 50% of (my) retail prices and 80% for the decorated stuff. As far as higher prices in the store, won’t my retailers be cranky about me competing with and undercutting their prices?
This is year 2 of the business, but only for the last nine months have I been splitting the working hours 50/50 between the two jobs. In the last two months, almost completely beyond my control it’s gotten way more successful than I could possibly have suspected, even with as little effort on my part as there has been on the “business” side. He knows I’m serious about it, and believes that it could work, in theory, but I think he actually wants to see the business earning a full-time paycheck on part-time hours before he’s going to feel comfy releasing the death-grip on the guaranteed paycheck.
We’re working on that one. The guy is a PhD candidate yet is terrified of my work. He wants to help, but he’s afraid he’s going to mess things up. I’m having him put together product tags tonight. Baby steps.
Oh, man, is that all I need? One thing I read suggested having enough to cover six months worth of bills in the bank, or borrowing that amount. We are absolutely official, have been since I started. Happily, we’re a no-sales-tax state.
I did consider writing a business plan for an SBA loan, but all the info I could find said the lowest amount they’d lend me was something like $50k. A bit more than I’d need, for sure. Also, I got a bunch of info from the county microbusiness association about writing a business plan, but have no way to come up with all the statistical and industry info they said I’d need, although thinking about it with two years of sales history I could probably write a pretty tidy business plan. When I asked an advisor how to go about getting that information, she said to “make assumptions and project. In other words, make it up”. Uh… really?
All I needed to go into production was an industrial sewing machine and a couple of hides. At the time we’d just bought a house for $25k under the appraised value, so I pulled a couple thousand out of the equity as a business start-up fund. That was paid back very quickly, so now I’m operating with really very little expense.
That is excellent news. Also, the pet industry is one of the only industries that continually grows every year, regardless of the economy. Hooray!
Thanks for all your responses, I really appreciate it. I’m kind of learning as I go with all of this and am pretty terrified of screwing the pooch big-time with the business side of all of it. I have a degree in studio art and make beautiful things, but I’m well aware that a whole lot of good businesses go belly-up through the ineptitude of the management regardless of the quality of the product or idea. Eek!
200% profit means triple your expenses after paying yourself a living wage. Careful with that type of thinking, it can turn around and bite you in the ass. Never think of yourself as free. Find a way to pay yourself minimum wage, if you are feeling ambitious take my forementioned quickbooks idea and cut yourself a paycheck maybe a per piece rate so you have a good guideline for income/production costs. If the cash starts piling up, let it for a couple months, preferably in an interest bearing account. If you stack up another months bills of cushion, give yourself a 10% raise and see what happens. Stack up another month, give yourself another raise. That way, you have both something to look forward to as well as a bigger cushion. Eventually you will find the balance point, then dial it back 3-5% to make sure you are always adding to the cushion. Got 6mo of cushion, open an IRA, add money. Max IRA for the year open a brokerage account and ask your accountant for some guidance on retirement planning, add 50% of your cushion to account and rebuild cushion.
When you have a year plus of cash reserves pretty much any bank will happily hand you a loan to expand with, especially if it lives in their bank.
This is also where the accounting software will help, hard numbers in and out.
Even helping pack orders and such give you more time to produce product. Might consider things like prepackaging and labeling the boxes so shipping is just a pick and stick kind of arrangement unless multipack orders are the norm. Even helping with things like ordering product or helping you forecast materials needs and such could be very helpful.
You already have a revenue stream going, the 6 mo guideline assumes a cold start. I dont know how much you make at the normal job but if its <$15/hour and you are having trouble covering orders, you probably would make more full time at your business. Every successful sale is a potential referral to other owners so covering orders promptly is critical.
[calvin]
Reference desk librarians know everything, even the things you wish you hadn’t asked
[/calvin]
Ask at the library, stumping a good reference desk librarian for more than 24 hours is not gonna happen often. Some libraries subscribe to business databases as well. You could find every pet store in your state. Take that list and mail merge it onto postcards. Mail a few (like 3-5, 10 tops) every day. That way your orders will probably ramp up a bit but if you see a spike you can stop sending out cards till you have a handle on it. Working 60 hours a week, add employee, then send out more cards :D. Might consider looking for other leather artisan types or perhaps students of the trade. Look at leatherwork in county fairs and such.
Find a good accountant and plan on meeting him every month or two for a while. He can
A: Give you good projections of your financial state and the self sufficency of your model.
B: Make sure you don’t do anything royally stupid like forget to set aside money for income taxes
C: Help with business plan data and the type of “forward looking statements” that they expect vs. complete hot air.
D: make sure you get every scrap of expenses you can out of your business.
Finally <insert evil value added marketing smiley> ever considered numbering the collars and offering a lost dog database?
For just $4.95 extra (and $3.95 per additional year conveniently auto billed to your Credit card if desired :D) your pet can be added to our online database and looked up for relay of a lost pet found notice via email or phone.
Couple thousand of those later you have a whole separate revenue generating business managing the DB. Add part time computer geek, stand back, collect revenues. If it works by email, it could probably mind itself for weeks at a time (aka Free money machine)
Oh, man. You’re my hero!
Clearly I’ve got some organizational work to do, but I hope you don’t mind me hitting you up every once in a while with a question. I think once the paperwork is tidied up, I’ll have a much better picture of what’s happening and a firmer grasp on the goal. I’d like to be full-time in two quarters. We’ll see!
First, before talking to any retailers, understand the terminology. You’re not offering a 100% profit margin–that would mean you’re giving them free product. You’re offering a 50% profit margin, which is the same as a 100% markup (the retailer sells for double the purchase price). In the gift trade, this is called “keystoning” a product.
Next, as for the fancy high-end version: I would have no problem taking special orders for it. I do that with other low-margin products now. The customer pays me up front, so I’m not out any money (or space) for inventory. I can definitely afford a 20% margin under those circumstances.
One red flag, though: you mentioned having your Web site prominently displayed on the items. Does it say anything like “To buy more widgets, contact us at XXX” or “Custom versions available at XXX”? I (and a lot of other retailers) don’t like selling something that had advertising on it that specifically tries to cut us out of the loop on future sales. If you want retailers to give you their customers, don’t try to bypass them on the next go-around.
I know. Remember when I said “extremely high profit margin” and “plain ones sell for substantially more?”
$10.50!
Oh yeah, back to my original question. Should I be considering going into wholesale trade? Or is it not a good idea to do both direct retail and wholesale at the same time?
Do both!! Your direct retail line via web is nice because you can always fall back to it. With occasional email newsletters and special offerings it also keeps you in touch with your end customers. Pimping <ahem sorry> marketing your lost dog DB via email with stories of happy reunions could easily spawn another round of sales/renewals. If price point competition is an issue, you can always roll up your site prices a tiny bit too or tack a dollar extra on the shipping . I would avoid
Thanks for the corrections, I have an awesome knack for embarrassing myself.
And good to know the special order system would work for you. I thought not having to use floor space for inventory would be a bonus, too.
There are two product tags, one is a paper-board tag with a handmade product blurb and leather care info. On the last line is the web address. The others are military-style dog tags hanging on the collars. One tag has my logo, the other tag says:
NajaWidgets
Slogansloganslogan www.najawidgets.com
Thus one of my hesitancies about wholesale–I absolutely don’t want to give up direct sales, I enjoy vendor events and I genuinely like working with my customers. The retailers who want to sell my stuff know I sell to the public. I’m not sure why they’re okay with that, but they’re seeking me out.
It seems dumb to compete with myself by selling in both markets, but I guess I figured any source of revenue is good, even if I’m accepting a lower margin in one market than the other. It’s still profitable. Flawed thinking?
Still speaking with a retailer hat on here, I don’t mind if you sell direct, as long as:
(a) You’re selling for the same price I am, and
(b) You’re not telling my customers to buy direct from you.
If a book publisher puts a $14.00 price on a book, sells it to me at a discount, and sells it on their own Web site for $14.00, it doesn’t bother me a bit. If they sell it on their Web site for $9.00, I’ll be upset, and probably stop selling their products.
Guess what percentage of the “sticky notes” products out there are made by 3M, side by side with the Highland inexpensive brand notes, and the Post-It Notes Brand name products. I don’t know the exact figures, but it’s a pretty darn high percentage. Why? Because 3M doesn’t want any other company to have enough of the sticky notes market share to start getting economy of scale out of making it. So 3M makes the high-profit margin Post-Its, the medium-profit margin Highland, some store brand products (medium to low profit margin) and some little or no profit margin generics.
If you sell to retailers, and you sell directly to consumers, you are doubling the likelihood that someone will buy your product rather than a competitor’s product. And if you and the vendor have the same price, so that you get more money from a direct sale than a sale to the vendor, but the vendor-sale takes less of your time so you can make more product so that you can earn more money overall, I don’t think you are crazy.
Oh, my. Thanks everybody so much.
I met with a new retailer today, who loved the broker idea. She placed a sizable order of plain widgets and I’m putting together a photo portfolio this afternoon. She also feels like I’m not charging enough, and although she has my online prices, she’s marking them up 10%!
I feel like a rock star!
I’m coming to LA over Christmas time, anyone know of any upscale pet boutiques in the Encino/Beverly Hills/West Hollywood/Newport Beach areas?
