Physical Products can be NECSTY

[MB2]

Have anyone here tried to innovate an electronic product or an gadget and building a brand around it.Entry barrier for this is even harder.

This is the path that I am trying to step in.I am figuring out how to do it.

Harder the entry, more the reward.!

 

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[G-Man]

So maybe just ask them if they'd like to stock one unit and see how it goes? Since it's not going through a wholesaler I guess their cut would be decent.

I think you're misunderstanding @MidwestLandlord here, and it's an important thing to learn for selling B&M. A retailer has a fixed amount of real estate, so their goal is to turn that space into dollars. There are three basic elements to this: margins, ring, and turn.

• Ring: All other things equal, they will prefer and item with a higher ring. It increases gross revenue.
• Margin: All other things equal, they will prefer higher margin. It increases profit.
• Turn: All other things equal, they will prefer higher turn, it increases both revenue and profit.

By telling a retailer "just put one out there and see how it goes" you're telegraphing that it won't move.

It sounds like your item has a high ring and good margins. Those are both great things, but they don't matter if it doesn't turn.

there is opportunity costs.

This is the internal mental language of the merchandiser. You have to internalize it.

 

[MidwestLandlord]

Yes, that's why I don't want to push for a wholesale approach - the product takes up more space than the standard merchandise available at these stores.

So maybe just ask them if they'd like to stock one unit and see how it goes? Since it's not going through a wholesaler I guess their cut would be decent.

In physical product sales...

Customers never like to buy the first or last of anything. (I sell food products though, so might be an apples to oranges comparison vs your product)

So I don't know how a retailer would react to buying only one from you to start.

What you'll have to do is start approaching retailers, and change your offerings based off their feedback.

 

[MidwestLandlord]

I think you're misunderstanding @MidwestLandlord here, and it's an important thing to learn for selling B&M. A retailer has a fixed amount of real estate, so their goal is to turn that space into dollars. There are three basic elements to this: margins, ring, and turn.

• Ring: All other things equal, they will prefer and item with a higher ring. It increases gross revenue.
• Margin: All other things equal, they will prefer higher margin. It increases profit.
• Turn: All other things equal, they will prefer higher turn, it increases both revenue and profit.

By telling a retailer "just put one out there and see how it goes" you're telegraphing that it won't move.

It sounds like your item has a high ring and good margins. Those are both great things, but they don't matter if it doesn't turn.



This is the internal mental language of the merchandiser. You have to internalize it.

Exactly.

And I know how much gross $ each display space should generate (right down to the individual slot)

We run quarterly velocity reports. If a product does not live up to my expectations for turnover, it gets deleted. (with exceptions depending on other factors. I often have slow movers intentionally to drive sales on higher margin items)

 

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[Ultra Magnus]

Well, now I've got to internalize the wants and desires of both the target user and the retailer AND make sure I don't go bankrupt in the process

The product has gotten positive reviews from influencers. However, since it's expensive I think people would really like to get their hands on it before purchasing. From the user's perspective they won't be motivated by a money back guarantee if they have to pack the product up and send it abroad, it's a pain in the a$$ (there is a guarantee, ofc). They are used to checking things out at the store though, so this would be the ultimate risk reversal.

But the store is a business and they have to turn a profit. Some might be persuaded by the fact that no one else in the area has this (as most stores carry the same merchandise that can also be gotten online much cheaper). So far, I think I'm just going to send introductory emails along the lines of: "Hi, I'm X, would you be interested in Y? Here's my website, if you think this could sell for you let me know and we'll settle the details". I'll see where this takes me.

I'm learning a lot here guys and I really appreciate your feedback. I'm going to dive into this and report back with my findings. Hopefully, someone will be able to benefit from my experience.

 

[G-Man]

Well, now I've got to internalize the wants and desires of both the target user and the retailer AND make sure I don't go bankrupt in the process

The product has gotten positive reviews from influencers. However, since it's expensive I think people would really like to get their hands on it before purchasing. From the user's perspective they won't be motivated by a money back guarantee if they have to pack the product up and send it abroad, it's a pain in the a$$ (there is a guarantee, ofc). They are used to checking things out at the store though, so this would be the ultimate risk reversal.

But the store is a business and they have to turn a profit. Some might be persuaded by the fact that no one else in the area has this (as most stores carry the same merchandise that can also be gotten online much cheaper). So far, I think I'm just going to send introductory emails along the lines of: "Hi, I'm X, would you be interested in Y? Here's my website, if you think this could sell for you let me know and we'll settle the details". I'll see where this takes me.

I'm learning a lot here guys and I really appreciate your feedback. I'm going to dive into this and report back with my findings. Hopefully, someone will be able to benefit from my experience.

Good news bad news here, but I have an idea.

Sell it to them directly. Promise a velocity. Offer to cover lost revenue. We have to do this in supermarkets occasionally. It sucks. Only had to pay once, though.

 

[Ultra Magnus]

Good idea, G-Man. It might just be what's needed to seal some deals.

I'm reminded of Jay Abraham's tip regarding taking ideas from other industries and applying them in your own business. Can the experience of a food vendor be applied to a problem of a manufacturer in a nerdy niche? Of course it can. Finding these connections, thinking laterally, and discovering the business worlds inhabited by others is to me one of the chief joys of entrepreneurship.

 

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[G-Man]

Good idea, G-Man. It might just be what's needed to seal some deals.

I'm reminded of Jay Abraham's tip regarding taking ideas from other industries and applying them in your own business. Can the experience of a food vendor be applied to a problem of a manufacturer in a nerdy niche? Of course it can. Finding these connections, thinking laterally, and discovering the business worlds inhabited by others is to me one of the chief joys of entrepreneurship.

I think it's really for you going to be about understanding the economics of B&M. Once you really understand the circumstances the retailer faces, you can come up with tons of possible creative solutions. Retail is tough. I learn new stuff every day.

 

[mindfulimmortal]

So, it seems like many, if not most of the folks on the forum are in some kind of “online” work. I don’t see too many people that are selling a physical branded product into boring B&M stores, and none so far in food products. I love physical products, so I thought I’d share some thoughts about physical products (using food as an example) and CENTS for folks who are toying with the idea of going “offline”.

• NEED – Most of human life takes place offline, believe it or not. We all have products in our lives that we believe could be better. You probably have some in yours. Or maybe you’ve heard a relative say “I really wish they made a ____________ version of this” Do some research, what pain points do people have in the products they use every day.

• ENTRY – This is what I love most about physical products. When you work online, every idiot with a laptop tries to crowd your market. I’m not saying they can do what you can, or their value add is as big as yours, but they add a ton of noise to the market. You don’t find the idiot crowd too often in the supermarket. It’s too much work, and most people have the mistaken idea that you need a factory to get your product out there.

• CONTROL – This one, honestly, is tough. You are at the mercy of merchandisers at first. The way to overcome this is to aim big and shoot for a product so ubiquitous they can’t not carry it. Think Coke or Lay’s.

• SCALE – Everyone that walks into a grocery store/Walmart/convenience store. Everybody. It doesn’t get as much press as tech companies, because it’s not as sexy, but it’s not uncommon for food companies that get to 10+million in sales to sell at 15+ EBITDA multiples to the big boys. This is because the potential scale is everyone with a mouth.

• TIME – It’s extremely time intensive upfront, but the return on time grows geometrically as distribution grows. It’s just as much work to get a 100 store chain as it is a 1,000 store chain. You get to the point where you’re only taking time for the bigger calls, then all your little soldiers are on the shelf, calling out to the consumer, and turning back to the bank account.

This is by no means extensive, and there are definitely down sides, but I feel like a lot of people don’t even consider mass market physical products, and might be missing out on a huge fast lane

Excellent thought provoking post!
Peter Drucker captured the problem when he cautioned against organizing around the resource instead of the customer. Too many focus on the resource ("I will make an internet business") or plateform (internet) before they have a customer(s). The internet is neither bad nor good it is just a source to help connect you to customers. Why focus on the less than 10% (8.3% as of the end of 4th Qrt 2016) of where retail sales happen vs where 90% of sales happen?
Is not wholesaling (selling to retailers) the simplest, most effective, easiest to organize and control, lowest risk and least expensive way to market physical products in the US? Sustainment, profit and growth potential is good without parallel cost increases.

 

[eliquid]

Man I hate to ask this, but this is all kinda greek to me.

Where do I even start to learn about this B&M stuff and getting into chains and stores?

Whats a spiff? What's buyback?

Is there something I can buy and read that you can recommend learning all this ins and outs?

 

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[G-Man]

Where do I even start to learn about this B&M stuff and getting into chains and stores?

Honestly, I learned all this on the job. I don't really know. I kind of lucked out, and the founder of the business has been doing this for like 15 years, so I had an easy way to absorb it all.

Whats a spiff? What's buyback?

• SPIFF - it's an acronym, but I have no idea what it stands for. Basically, as a vendor you offer a commission to the employees at the B&M stores you sell at. You typically do it in periodic rotations. Employee sells item, get extra bonus in their check, retailer deducts from open AR.
• Buyback - typically it's when you just "buy back" an non moving or expired inventory. What I was suggesting for @Ultra Magnus was a way to give the merchandiser guaranteed revenue from a slot, to help them overcome the risk of taking on an unknown sku. It would go like this:
  • Ultra: How much revenue per month do you need from that slot?
  • Buyer: $800
  • Ultra: My item retails for $200, so I could give you that if I sold 1 unit per week, and my cost to you is $120, so I'm beating your 30% margin requirement.
  • Buyer: Sure, but I have skus that I already know can hit that target, why should I take a chance on you? I have quarterly targets to make.
  • Ultra: How about this - You buy 12 units for Q1, and at the end of 12 weeks, I buy back whatever is left over at $200

There are a dozen ways to do this, including just promoing, and often buyers will meet you half way (how about I buy back at $180?), but you're basically saying: No matter what, I guarantee you hit your revenue target, even if I have to buy it from you myself. It's a bold move, and you should make sure your balance sheet can take it, but it can be very effective.

 

[amp0193]

Gonna rant and rave here a little bit. I just spent the afternoon digging through 18 months of billbacks from an Albertson's region plagued by an incompetent broker.

Get as many sales to small B&M as possible. The cash cycle is way better, and they don't rape you with billbacks. I sometimes wonder if we shouldn't have spent an entire year doing nothing but selling shippers to small venues. I think if done right, you could easily create 30k/mo in prepaid, low-maintenance sales,... but the glory of being able to say "my product is in _______" is too tempting

I was thinking about this yesterday.

The other benefit of smaller stores is increasing your income resiliency. If you have 800 small stores, and lose 100 accounts, you're way better off than if you have a few huge chains, and losing one of them.

 

[amp0193]

This is essentially consignment, which I don't like very much, but if you're gonna do it, I would suggest that instead of profit splitting, you see if they'll let you offer a spiff to the employees.

It's tough. I'm honestly not sure how to go about getting first trial on a high tag item, but I'd try to get the employees in the stores selling for you. Spiffs make people happy, and owners of small stores are usually open to anything that makes their employees take any kind of sales initiative.

I don't think I've ever done consignment. It's just not worth the loss of cash flow.

I'd much rather do a 10-20% first time order discount, to entice that initial order.

 

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[amp0193]

Is not wholesaling (selling to retailers) the simplest, most effective, easiest to organize and control, lowest risk and least expensive way to market physical products in the US? Sustainment, profit and growth potential is good without parallel cost increases.

I think selling direct to consumer is way easier, especially with the internet.

• Consumers don't ask me for net-30 terms.
  
• Consumers don't ask me for a free sample before they purchase.
• Consumers come looking for me, B&M stores typically don't.
• Consumers purchase your pre-made offer without asking questions. Whereas, every B&M sale is a conversation that takes time and multiple follow ups.
• Selling to consumers, I'm not as dependent on their re-orders. There's always more customers that will find you through advertising. There's only so many B&Ms you can tap.

If you can nail down a good distributor, B&M becomes easier and less time consuming, at the price of lower margins for you.

My preferred strategy is to build up a base of income from direct to consumer sales, and use this to bankroll the expansion into wholesale.

 

[G-Man]

If you can nail down a good distributor, B&M becomes easier and less time consuming, at the price of lower margins for you.

It's not just lower margins. Once you get really going, you gotta pay someone a staff accountant wage to keep all the throughput and billbacks under control. Some of that shit can take 6 months to make it through and hit you with a payable.

I think your strategy of DTC to small retailer to major chain is the way to go. It will also get the product out there so that there's brand awareness by the time you hit the shelves at a chain, so you have pull from day one.

 

[mindfulimmortal]

I think selling direct to consumer is way easier, especially with the internet.

• Consumers don't ask me for net-30 terms.
  
• Consumers don't ask me for a free sample before they purchase.
• Consumers come looking for me, B&M stores typically don't.
• Consumers purchase your pre-made offer without asking questions. Whereas, every B&M sale is a conversation that takes time and multiple follow ups.
• Selling to consumers, I'm not as dependent on their re-orders. There's always more customers that will find you through advertising. There's only so many B&Ms you can tap.

If you can nail down a good distributor, B&M becomes easier and less time consuming, at the price of lower margins for you.

My preferred strategy is to build up a base of income from direct to consumer sales, and use this to bankroll the expansion into wholesale.

Interesting counter reasons amp. I guess what the product or services is makes a big difference. I like what Drucker taught which is entrepreneurs don't take risks (at least they mitigate and reduce them) . With selling to retail you can get the orders in hand before you even make the items. You can go for smaller min quantity but higher frequency to further reduce the risk. I have found that anyone asking for a "free sample" isn't serious about buying so in general either they are interested or they are not. You can source out the selling but gman is right the accounting logistics become a burden and time consuming or added cost if you sub it out. That's what I love about the forum. There are a lot of you who have experience and can bring the other side of things into perspective. Like Bruce Lee said "use what works and discard the rest"

 

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[G-Man]

I have found that anyone asking for a "free sample" isn't serious about buying so in general either they are interested or they are not.

Not to put words in @amp0193 mouth, but I think in the context of what he's saying, that's not true. Typically, when you sell to large chains, you are sending everyone and their brother samples of the products before hand, and in the case of CPG, if you finally do get on the shelf, oftentimes the first round of product that actually stocks the shelf you have to give them for free. The call this "freefill". When you sell directly to the consumer, they don't expect you to stock their F****** warehouse for free.

With selling to disty, a lot of people just leave all that loss in their margins and never really track it, because it's not worth it. Because we're building this company with an eye to selling to a publicly traded multinational from day one, we can't do that.

 

[mindfulimmortal]

Not to put words in @amp0193 mouth, but I think in the context of what he's saying, that's not true. Typically, when you sell to large chains, you are sending everyone and their brother samples of the products before hand, and in the case of CPG, if you finally do get on the shelf, oftentimes the first round of product that actually stocks the shelf you have to give them for free. The call this "freefill". When you sell directly to the consumer, they don't expect you to stock their F****** warehouse for free.

With selling to disty, a lot of people just leave all that loss in their margins and never really track it, because it's not worth it. Because we're building this company with an eye to selling to a publicly traded multinational from day one, we can't do that.

Copy and well taken gman. I have no experience selling to big distributers so my ignorance in this area is noted. I have only sold to smaller specialty retailers previously. I attended a trade show with another business with an importer who showed me how to tell if someone was really interested. I think it comes down to if you are selling 10,000 to a bigger retailer then yes they want samples. But if you are selling smaller lots such as 100 their risk is much smaller and in general it is not needed.

 

[amp0193]

With selling to retail you can get the orders in hand before you even make the items.

I actually used to do this, but you gotta have fast lead times. They start to get pissed if they don't have their order in 2-3 weeks.

You can pre-sale direct to consumer as well, which is how I am going to launch my next business this year.

I have found that anyone asking for a "free sample" isn't serious about buying so in general either they are interested or they are not.

Nearly every store with multiple locations sends copy/paste templates to handle the sheer number of new vendor requests. They won't even talk to you until you do their paperwork and send a sample.

 

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[Ultra Magnus]

Well, I cold emailed about a dozen stores in good locations on Friday, still don't have any response. There's a language barrier (I don't know German), also I don't know if that's a channel through which they actually get any proposals in the first place. I'd have more luck calling them on the phone, but I need to find someone who speaks German fluently to do that for me I think.

Anyway, the journey continues. Also, regarding what @amp0193 wrote above, I also pre-sold one unit of a product that will be ready in about three weeks directly from my website, it feels like magic (the photos didn't even show a finished prototype).

 

[amp0193]

Well, I cold emailed about a dozen stores in good locations on Friday, still don't have any response. There's a language barrier (I don't know German), also I don't know if that's a channel through which they actually get any proposals in the first place. I'd have more luck calling them on the phone, but I need to find someone who speaks German fluently to do that for me I think.

Anyway, the journey continues. Also, regarding what @amp0193 wrote above, I also pre-sold one unit of a product that will be ready in about three weeks directly from my website, it feels like magic (the photos didn't even show a finished prototype).

My close rate on cold emails, if I was to pull a number out of my a$$, is around 3%. 3% of the 12 locations you emailed rounds down to zero. So, your results sound about right.

Also, did you email them only once? I email each cold lead 4 times, and only stop after the 4th email with no response.

 

[Ultra Magnus]

No, so far I only emailed them once. I figured I'd wait a bit for a response before following up, but that's definitely in the works. I know about response rates for cold prospecting, it's what hooked me up on Dan Kennedy's marketing methodologies a while back

 

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[G-Man]

I figured I'd wait a bit for a response before following up

If you're waiting longer than a week, you're waiting on someone that 100% has forgotten you exist. Keep after it. You'll get one.

 

[Ultra Magnus]

I'll get to it. In parallel, I'm also looking to hook up with someone for distribution within the US, since the fees Fedex charges are ridiculous and are more than likely scaring clients away (in this age of free shipping and FBA). But I'll do that in a separate thread, not to derail the discussion here.

 

[G-Man]

I'll get to it. In parallel, I'm also looking to hook up with someone for distribution within the US, since the fees Fedex charges are ridiculous and are more than likely scaring clients away (in this age of free shipping and FBA). But I'll do that in a separate thread, not to derail the discussion here.

I don't think documenting challenges/solutions faced in logistics for distribution of a product is a derail. It's an important factor to consider.

 

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[Ultra Magnus]

G-Man, you are a monster at speedy replies. Having had trouble getting quotes 100% in the area and scale I was interested in ("sure we can help you, just send us everything at our email address", instead of "what's your name and business, and how can we be in touch") I hope to God that your attitude will become prevalent among businesses everywhere. Yeah, that's never happening, lol!

EDIT: If anyone here lives in the US and sells stuff online, I'm looking for a partner who would be willing to store a pallet of my products and ship them to my customers. I will gladly pay for the service. It doesn't need to be a fancy warehouse with temperature control, I store my stuff in the garage. I'm specifically calling out ecom people because you're already doing this (unless you dropship or do FBA). I will also post a separate thread.

 

[G-Man]

G-Man, you are a monster at speedy replies. Having had trouble getting quotes 100% in the area and scale I was interested in ("sure we can help you, just send us everything at our email address", instead of "what's your name and business, and how can we be in touch") I hope to God that your attitude will become prevalent among businesses everywhere. Yeah, that's never happening, lol!

I'll take that as a compliment. I'm the company controller, and I spent my morning in a hot warehouse cutting open boxes from a new vendor in one of our packing vendor's facilities. I'm not a hands off guy, it's not in my nature

Also, I like to set that example for the people that work for me so that when they miss a detail, they have no excuses, because they've seen me get all over that shit.

 

[amp0193]

EDIT: If anyone here lives in the US and sells stuff online, I'm looking for a partner who would be willing to store a pallet of my products and ship them to my customers. I will gladly pay for the service. It doesn't need to be a fancy warehouse with temperature control, I store my stuff in the garage. I'm specifically calling out ecom people because you're already doing this (unless you dropship or do FBA). I will also post a separate thread.

PM sent. I got a guy. Forum member that isn't too active anymore.

 

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[Ultra Magnus]

Just a small update, I'm currently talking to the contact @amp0193 sent me. I've also had one other positive reply regarding logistics in the US, from a referral I got at a company recommended to me by @Walter Hay a year ago when I was looking into Free Trade Zones (far too small for that option, unfortunately).

We'll see where this will go as individual parcels avoid customs fees since the value is too small (under $800 USD), but a bulk shipment would incur entry costs. I assume those would be calculated based on the retail value of the goods.

So here's a question, assuming in the future I found some stores in the USA that'd like to sell my products, would the declared value be the price I'm getting from them (which would be significantly lower), or the retail value? For the purposes of customs fees, would the units going to stores have to be separated from the same goods at the same warehouse but sold to individuals?

 

[G-Man]

Just a small update, I'm currently talking to the contact @amp0193 sent me. I've also had one other positive reply regarding logistics in the US, from a referral I got at a company recommended to me by @Walter Hay a year ago when I was looking into Free Trade Zones (far too small for that option, unfortunately).

We'll see where this will go as individual parcels avoid customs fees since the value is too small (under $800 USD), but a bulk shipment would incur entry costs. I assume those would be calculated based on the retail value of the goods.

So here's a question, assuming in the future I found some stores in the USA that'd like to sell my products, would the declared value be the price I'm getting from them (which would be significantly lower), or the retail value? For the purposes of customs fees, would the units going to stores have to be separated from the same goods at the same warehouse but sold to individuals?

Declared value what you paid the vendor.