You can decide to sell your product in a number of ways:
- Self selling: going from retailer to retailer, trying to convince them to buy your wares.
- Taking a stand at a Trade Fair where retailers attend to find new product.
- Using an Agent or Distributor to sell on your behalf.
- Leaving goods on consignment with a retailer.
- Undergoing an advertising campaign to raise awareness and create a demand, resulting in sales.
- Licensing your Intellectual Property.
- Network promotion
Whatever method (or combination of methods) you decide to use, you need to have a ‘plan of action’ to a time frame and should monitor results, so that you know which method works best for your business.
Consider the following points when making a decision: -
- There is a saying that ‘no one knows your business as well as you do!’.
- Therefore you should make the best salesperson, as you are more committed and passionate than anyone else is likely to be.
- You get to know your customer and build a business relationship.
- Many manufacturers/entrepreneurs don’t make good sales people, as they are too shy and nervous and simply hate having to promote themselves and their product.
- Most operators selling their own product, seldom cost their time accurately, making it impossible to sell the goods if they have to use an agent, at a later date, without increasing the price of the product
There are a number of Fairs held in the major cities specialising in different products eg. Gifts, Children/Toys etc. They are only open to the trade, meaning that you have to be a registered business to attend. Many are very strict re entrees and require more than one article of proof that you are a business. Retailers, wholesalers, Agents and Distributors attend there Fairs to source new product.
Vendors exhibit their products, but must not sell direct to the visitors. Visitors place orders which are normally sold via a Proforma Invoice. This simply means that when the order is ready for distribution an invoice is sent with the word ‘Proforma’ added. A covering note says that the order is ready and will be distributed on receipt of payment. These Trading Terms must be explained to the client when the order is placed.
Sometimes it is more expedient to employ someone else to manufacture your product or provide the service you offer, while you market/promote and sell. If the client insists on you providing the finished goods, then you could charge more.
- In a compact period of time, you have retailers from all over the country, attending Trade Fairs looking for product. If you are set up correctly, and understand how to get the best from these Fairs, you can take good orders. This saves you an enormous amount of time trying to make sales from ‘knocking on doors’.
- It can be of great assistance to enable you to capitalise on your Trade Fair expenses if you attend a course or speak to a consultant, to ensure that you gain the required leverage that can result in sales.
- With a well designed survey, you can also gain valuable information from your potential clients, making the future development of product (R&D) much more targeted and relevant to their requirements.
- This is a very expensive exercise. Not only do you have to pay large dollars for the stand (around $3000 - $4000 for a three metre square), you also have the cost of support material eg. brochures, catalogue listing, lights, furniture/displays, travel and accommodation (if you are exhibiting interstate) — let alone the cost in time while you are out of your business. You really do need a second person to assist you at the Fair as well.
- Operators seldom cost the full expense of a Fair into their product, making ‘on going’ sales to customers imperative to ensure profit is made in the long term. You really have to depend on long term repeat sales from customers gained through Trade Fairs.
Agent / Distributor
At some time you will probably consider using an agent or distributor, to allow you to spend more time on producing your product, research and development (R&D) and Marketing.
It is important for you to understand the difference between an Agent and a Distributor.
- Purchases the product and takes ownership of it
- Expects a large discount (often 30 — 50%) to enable him to put his ‘mark up’ margin on and still retain the wholesale price
- Gets best results when both Distributor and Vendor work together and agree on marketing strategies.
- Has an agreed territory
- Frees up Vendors time, allowing them to fully concentrate on manufacturing the product.
- Increases cash flow and reduces bad debt, as the Vendor is working with less people (does not have to handle the many retailers, only a few distributors).
- Can decrease costs related to selling (eg. vehicle, wages/commissions).
- Increases sales as someone else puts in the time to reach retailers.
- Vendor can lose control of retail pricing (RRP), as distributor is free to set the price.
- Vendor has no control over customer relationships
- Unless agreed upon, Vendor has no control over marketing strategies.
- Vendors product must be able to be priced low enough to allow mark up/margin of the distributor.
Note: If a Vendor decides to use distributors, it is advisable that they do not sell direct to the retailer at wholesale prices themselves. If they do, they must keep the prices the same as the distributor.
- Is a Sales Person
- Usually has more that one Vendor as his customer
- Vendor sets the price and trading terms
- Usually paid a commission, but can also receive a retainer
- Vendor distributes the goods and invoices the customer
It is important to have a written agreement:-
- List what product they may sell
- State how long the agreement will last (advisable to have a short trial period initially)
- State what geographic territory they will be allowed to cover
- Consider what type of report you require and how often (you need to know what interest there was in your product, as well as what sales were made).
- State the procedure to follow when orders are placed
- Note how often the customer will be serviced (How? phone, visit, etc)
- What commission will be paid and when? (eg. 30% paid within 30 days of Vendor receiving payment from customers).
- What strategy is in place in the event of a bad debt?
- What is the procedure re payment owing to the agent if a client from his territory goes directly to the Vendor
- State Rules pertaining to Samples given to the Agent.
- It is a good idea to ensure that all payments for product comes direct to Vendor, never to the agent.
- If a group or co-operative of Vendors are working together with the same agent, it helps lessen the confusion if all orders are placed with one vendor who distributes the applicable orders to other vendors in the co-op.
- Frees up Vendors time, allowing them to fully concentrate on manufacturing the product.
- Increases sales, as another business puts the time into reaching retailers.
- Vendor retains control of pricing, marketing, and customer relationships.
- A bad Agent can damage your reputation and customer relationships.
- Orders can dramatically increase and you must be able to meet them.
- Agents sell on behalf of more than one Vendor (otherwise they become employees), and naturally will put more effort into selling popular products. It is difficult for the Vendor to determine how much time and effort is put into selling their product. Because of this, it is imperative to receive regular reports, to allow the Vendor to monitor the Agents effort.
Many artist and crafts people will leave their product on Consignment with retail outlets and galleries. This is often the only way these Vendors can get the retailer to offer their product to the consumer, due to the high price and the individuality of design of the products.
Vendors must realise that they are taking all the risks:-
- Bearing the cost of production
- No cash flow
- No control over the safety of the product or quality of display
- Added costs in time of administrating the placement and sale of product.
Once the vendor has decided to use the Consignment method, they should have a written agreement with the retailer. This agreement should take the following points into consideration:-
- Have a time frame for how long the goods will remain in the store
- Agree on where the goods will be positioned in the store, over what period of time (eg. 2 weeks in front window, 2 weeks above or blow eye level or at back of store)
- Agree to present goods, in a clean and professional manner
- Agree to have goods on display within a specified time of receiving them
- Retailer not to remove goods from the store or put into storage without the permission of the Vendor.
- When and how payment for sales is to be made
- In the event that orders are taken by the retailer, have a system in place re how and when the Vendor will be notified, and how and when Vendor will deliver the goods.
- Have a statement clarifying that Vendor retains copyright/intellectual property.
- Agree on how often Vendor will check with the retailer (phone, visit, fax, etc). The Vendor should not become a nuisance. However, it is not a bad idea to have a friend check out the display, service etc and report back to the Vendor.
- What happens in the event of theft?
As with most success stories in business, written reports indicate a commitment to business planning and a professional attitude. If a retailer won’t submit a report, then you can guarantee they won’t respect your product and don’t value that you are the owner of the stock that makes their retail outlet exist.
A report should cover such things as:-
- Regularity of reporting
- What product has been sold
- If no sales are made
- Where the product was displayed within the time frame
- If there were any difficulties in displaying the product and possible solutions.
- If any orders were taken, how many and the value
- Any pertinent comments made by customers about the product
- Any complaints/how were they handled.
- An opportunity for the Vendor to have the product seen by the consumer.
- A good way to ‘test’ what the consumer actually likes/will buy and at what price point.
- Time consuming to keep a track on all outlets and product
- Strict bookkeeping required
- Product is often treated badly by the retailer (after all — it is not their product, they have not paid any thing for it)
- A great deal of stock has to be made without any payment, creating cash flow problems.
- Loss of stock is prevalent
It is very costly for Micro businesses to undertake an advertising campaign. It is important to know who the target market is and what media they use when sourcing specific product/services, if an advertising campaign has a chance of working.
Consider the following:
- Yellow Pages — many products and services gain clients from this phone index. For example, florists gain over 50% of their clients from this source. There would be many products/services that would not necessarily do well eg. business consultants, wordsmiths.
- Local Papers — the tradesmen do well here eg. plumbers, builders, etc. The public gets used to seeing the add and when they require the service, they will go to the classified area.
- Magazines — some product does well in specific Trade magazines eg. golf gloves in a golfing magazine. The product must be competitively priced with any similar product.
- Radio — if you are targeting listeners of a particular station, you could be successful. If you can relate your product/services to community based programmes, you might be able to get free advertising.
- Television — this is the most expensive form of advertising. If you can offer your product as prizes to some of the shows, you can gain promotion. Also check with community/rural television — they may be prepared to do an interesting story on your product/service (especially if you can add a human-interest element to it) which may lead to sales.
- Association Newsletters — the cost of advertising is usually very competitive, and if this is your target market, advertisements can work well. However, you do need to be seen constantly, to develop a sense of trust with association members. It can also be helpful if you become a member and use your membership number in the advertisement.
- Sales can result which are easy to measure and monitor
- You can tailor the ads to target a specific market
- Can create a ‘brand’ or image
- Advertising is usually expensive
- Advertising only works well when there is a saturation strategy in place
Licensing intellectual property
Micro businesses often have valuable intellectual property that other companies would like to access. If you don’t want to sell the property, you can license it.
It is usually advisable to have a solicitor draw up an agreement but often this is a costly and lengthy process. An agreement lets both parties know the expectations of each and should not be seen simply as a tool to allow litigation to take place. If you are not in a financial position to sue, if the other party does not abide by the agreement, then don’t attempt litigation. Don’t think that if you are in the right and win that you will automatically get your costs paid. This is not necessarily the case.
The greatest protection a Micro business has when deciding to license is to choose a company that is large, reputable and has a number of licenses in place. They cannot afford to act improperly, as to do so, would damage their business reputation.
When negotiating for the first time with a company where you have to disclose your intellectual property, have them sign a commercial in-confidence non-disclosure agreement.
Not only does this show your professionalism, it puts the company on notice that they are being given the opportunity to view material which belongs exclusively to you.
It is a good idea to attend such a meeting with a third party, who can act as a witness. This person should be someone recognised in the community with a professional profile eg. solicitor, business adviser (ask your business network organisation) etc. You will probably have to pay a small fee — but it is worth it. Not only can this person act as witness, but if you discuss what you are trying to achieve prior to the meeting, they can assist by asking questions and introducing any points, which you may forget.
- Licensing allows you to produce a range of product you normally could not afford to do.
- Offers extra marketing and promotion via the licensee.
- Gains you a larger market share as product is sold to the licensee’s retail contacts.
- The Licensee is usually the wholesaler. They may or may not be the manufacturer. Therefore the finished product is not likely to be exactly as you envisaged.
- The licensee invests money and time, you invest intellectual property. However you are partners in this relationship. Therefore you have to consider the licensees restraints and difficulties when assessing the finished product.
- The royalty is comparatively small (5-10% is usual) and it can be quite costly to set up meetings and co-ordinate licensees (if you have more than one).
Licensing can open up doors of opportunity for you
The Micro business sector excels at selling by building their network and promoting themselves via the network they have established.
There are rules on how to Network successfully (see Networking). It is suffice to say here, that you should never set out to make sales while you are networking new contacts. Sales may be the result, but networking is about making contacts rather than sales. Your promotional brochure can be passed on to contacts — which takes place of an advertisement.
If you follow the philosophy of ‘what can I do for you?’ when networking, then the ultimate results will be ‘what’s in it for me?’ Do not approach networking in reverse — it simply won’t work.
- It is very cost effective — the main cost is in time
- It has a domino effect — you often end up doing business with your contacts’ network
- It gives participants a positive feeling, which creates a caring, trusting environment in which business can take place
- It easily develops into business relationships.
- It is very time consuming
- It is a long-term investment — results are rarely short term.
- It is difficult to measure the outcome, unless you have a plan in place