RETAIL/WHOLESALE PRICE STRUCTURE
As a general rule of thumb, your wholesale price should be 50% of your retail price. If it is less, you will have a difficult time selling your products wholesale. Often, it will take some work to make sure there are adequate margins for you both and the gift retailer.
Here is a formula to use when determining pricing for your products:
First step is determining your cost per unit. Costs include the following:
• Ingredients or raw materials
• Processing or assembly of raw materials
• Packaging and labeling
• Shipping of raw materials to your place of business
Second step is to determine the retail or selling price of your item to the consumer. Using a competitor’s selling price is a starting point to ensure you are in the same price range. From the selling price, you work backwards to arrive at the wholesale price you should charge.
From the retail or selling price, subtract the retail and distributor or sales rep margins. Most retailers in the gourmet foods industry use a margin of 40%, whereas gift retailers use a 50% margin. Distributor margins are generally 25-35%, and broker or sales rep commissions are general 15%. Even if you currently do not use distributors, brokers or sales reps, these margins should be included in your pricing. As you grow and add these services, you want to have your pricing in place.
As a manufacturer, you should aim to retain a 40% gross margin. This gross margin must be large enough to cover overhead, administrative costs and marketing expenses.
If the retail or selling price is $5.00, total manufacturing costs per unit are $1.40 and the manufacturer pays shipping costs of 5 cents per unit, you would sell your product to the distributor for $2.20.
Typical standard payment terms for selling to gift stores are Net 30 days. In other words, you deliver or ship your products and in 30 days the retailer will pay for the order.
Credit card payment is another standard payment method which is becoming more popular with gift store buyers.
Other payment terms which are not as common are as follows:
• Pay via PayPal. In the eight years I have been a sales rep, I have not seen a store use this option, but it is available if you have a PayPal account
• 2% Net 10. If the store pays their bill in ten days rather than 30 days, they can deduct 2% from the total due.
• Net 60 or 90 days. In the event that you wish to get your product on the shelf quickly, but have the cash flow to wait longer for payment, this is a good option. I used Net 60-90 to promote early sales during a very slow season.
• Pay half the invoice amount when the order is shipped or delivered and pay the balance due in 30 days. I used this option with a store that was historically late with their payments.
• COD or cash on delivery. If you deliver your products, this option will probably work, but I don’t recommend it if you are shipping.
Which ever terms you decide to use, remember to investigate all your options and be well prepared when offering payment options to your potential buyers.
SALES AND ORDERING MATERIALS
Sales material for the retail store buyer is very different from the color brochure you may hand out to consumers. Gift store buyers want to know five basis facts about ordering your products:
1. What does it look like?
2. How much does it cost?
3. What is the minimum order?
4. What are your terms?
5. How do I re-order?
Your sales material should answer all these questions.
Simple, but effective, sales materials can be created on your computer. Start with a picture of your products and make sure you include all the information that answers the five questions above: List unit and case costs, minimum amount for orders, ALL the terms you will accept, and your contact information (phone, fax, email and website). Sales sheets can be copied and left with buyers.
Write your orders in sales order books which can be purchased at any office supply store. Two copy sales order or general order books work best as you can use the top for your records and a second copy for your buyer. Rather than having the sales books personalized (an expensive process), you can print a small label to adhere to the buyers sales order copy that includes your name and contact information. Leave this copy with the buyer.
If you are able to buy or create business cards, give one to the buyer or store manager. Business cards make your company look more professional.
Determining how you will get your products to the retail outlets is often an overlooked point in the wholesale sales system. You can give a perfect presentation to gift store buyers, but if you don’t have a delivery system, your products will never make it to the shops!
Listed below are a few options to getting your products into the store.
1. Deliver the products yourself. If you have a small territory to cover, delivering your products is not a bad idea.
2. You can hire a distributor to handle your products. Often, with this scenario, you would sell your products to a distributor at a deep discount who would warehouse and distribute them via their system.
3. You can ship your products to the retail outlets. This is the most common way to get your products to the shops. With this option, it is customary to bill the retail outlet for the shipping while you pay for the cost of packing your products.
If you decide to ship, make sure to check out the shippers available in your area. UPS, Federal Express and US Postal Service are three very reliable shipping vendors. Each company has their own requirements for packaging, insurance and delivery time. You should acquaint yourself with the specifics of all the companies you plan to use. Most freight companies have websites where you can open an account and print labels right from your computer.
BOOKKEEPING AND DATABASE SYSTEMS
Setting up a good system to track your gift store buyers and your sales is necessary to maintain your sales records.
Bookkeeping Systems: QuickBooks is the most commonly used computer bookkeeping system available. You can use QuickBooks to invoice, track sales, expenses, accounts payable (what you owe people) and accounts receivable (what people owe you!).
If you decide to use QuickBooks, you have the option of using QuickBooks Pro or QuickBooks Premier for Manufacturers. Pro version is the standard basic bookkeeping system whereas Premier will allow you to track inventory and cost of good sold (cost to manufacture your products).
Or if you wish to use just a very simple system to keep track of sales, Microsoft Excel gives you the option to list each sale and payment dates.
Database Systems: Depending how intricate of a system you want, there are several different options for database systems. Microsoft Access has many field options depending on how much information you wish to retain and gives you the option to print mailing labels if you want to send newsletters to your buyers.
QuickBooks has an add-on program called Customer Manager which can manage more advanced customer information such as recent contacts, phone messages, calendar notes, and TO DO lists.
Lots of customer management systems are available, just like there are more bookkeeping systems you can use. The important point is to use what will work best for you and meets your business needs.
FOLLOW UP AND RE-ORDERING SYSTEM
If you have followed my suggestions so far, you should have the beginnings of your re-order system in place.
One of the first places a buyer will look for re-order information will either be by referencing your invoices or your order receipts. Including your contact information, email, phone, address, and website (if you have one) on these forms is critical to ensure the buyer will be able to re-order from you. And if you have left your business card with the buyer, even better!
So you set up all these systems … left all the appropriate products and materials with the buyer … and now your wait to hear back from the buyer ….. WRONG!! Buyers are very busy people and will seldom call you with a re-order (although, I have been wrong about this!). Often times, your product will sell out, be filled with another product, and the buyer will forget your product was there originally!
Keep in touch with your buyers. I recommend that you call about 30 days after they receive your order. Check to see if your products arrived promptly and in good condition and that they are satisfied with the order. Buyer’s answers will give you some clues as to how well your products are selling. You might ask them when you should check back with them. Or just call again in another 30-45 days depending on how well they tell you the products are selling.
If you have added each customer to a database such as Microsoft Access or Excel or one of the customer management software programs, you can tract and schedule when you should follow up with each account. Personally, I use a mix of Microsoft Access and Outlook to remind me.
Follow up is very important, like I said, as buyers can and will lose track of your and your products if you don’t!!
Simple planning and implementing systems BEFORE you make your first sales presentation will aid you in keeping accurate records and keeping a professional profile when visiting gift store buyers.