To Wholesale or not to Wholesale

March 15, 2018 12:05 am | Make a Comment

… that was my question. 

A few years ago my answer was NO! That the business I built up was based on an experience I had created. 

Delicious Pops

+ Vintage Van

+ Dishy Dames

= Delish Ice

There was a time that I could (and did) wax lyrical about why wholesale would not work for my business.

At that time I was firmly focussed on building the events side of the business. I did that, but then things changed – I got tired and burnt out from early mornings and late evenings back to back dropping vans off and picking them up. The challenges of having to have so many staff on the books to cover the peak times but then try and share the work evenly in the quieter times. 

Events became more competitive to get into, and more expensive to attend and turnover reduced.

It was time to pivot.

So after being asked a lot where people could buy our pops outside of markets, I finally got my act together (actually a dear friend helped me source the wrappers, finalise the design work and make it happen. Without him I probably still wouldn’t be ready!)

Launching our wholesale line officially in January 2017 in just over 12 months we  have grown the wholesale side of the business to:

  • 80 + stockists throughout WA
  • Have a Melbourne Distributor
  • Enquiries from around Australia

and I’m like 

Why didn’t I do this sooner!

No matter. What’s done is done.

 

I wrote this blog post, because sometimes I see businesses not wanting to give away margin to retailers, but in my opinion you are doing a disservice.

A disservice in the sense that, if you want to grow and expand and share your baby with the world then use wholesale as a piece of the pie.

For example, while I just make the one product in effect, we have many avenues for selling pops

  • Markets, festivals and events
  • Prepaid catering jobs – weddings, christmas parties
  • Fundraising events
  • Branded activations
  • Wholesale
  • Online Sales

So wholesale is just one part of that. 

Is giving away a margin to retailers worth it? 

For me (now that I can see clearly) absolutely. 

In my case wholesale has 

  • Given the brand even more credibility
  • Made it easier for people who love our pops to get them
  • Brought in fairly consistent revenue to underpin the business cashflow (used to be difficult with events, where if you had lots on but the weather was going to be bad you were cactus… like this weekend)
  • Been an almost passive form of income. Rather than us being out at events on the weekend, our pops can accessed 7 days a week. I can still be selling pops whilst be at home with my new baby (super important)
  • Opened up other opportunities I never would have thought
  • helped the business move from a seasonal business to one that operates all year round
  • Added to the value of the business

Before you start wholesaling though it is important that you do your numbers. I preface this in saying that numbers are not my strong point, so talk to your accountant too and see what they think. 

I am looking at launching a new line of pops, and I am trying to do things a bit different than I had in the past (I’m more a gut feel / skin of your teeth kinda gal)

In my case there are a few numbers I need to be aware of:

  • Cost of Goods
  • Manufacturing Labour component
  • % of Operating Expenses*
  • % Target Profit*
  • % Owners Wages*
  • % allocated for Tax and Super*
  • Margin to Distributor
  • Margin to Retailer
  • RRP 

 

I suggest reading/listening to a book called Profit First (there is also a Profit First Australia Facebook Group to Join too). I’ve not yet finished the book but it was an eye opener and inspiration)

  1. Find out what your costs are to create your product – I used Ingredients + Labour + Packaging Costs and got the total
  2. Then I added 30% of that total for Operating Expenses, another 30% for tax and super, 30% for Owners Wages and then 10% for target profit. 
  3. Then I had a base in which I could set a wholesale price at. From there I looked at comparable products and set my ideal RRP. Working back from there I set the retailer margin at 40% minimum. In my case I also want to use a distributor** so I need to account for 30% margin for them.
  4. I played around with the figures until I was happy they were reasonably accurate. Is the RRP reasonable? If I sell X amount will that be enough to make Operating Expenses 30%. Is it reasonable to realise 10% profit straight up or do I need to stage it. Should I build in a % contingency. Does the retailer and distributor margin based on my wholesale price equate to a Retail Price that people will want to pay?
  5. My spreadsheet looked something like this. Like I said best speak to your accountant. This way of working your numbers out is a little unorthodox but I feel it makes senses. It is making sure that all your business costs (to the best of your ability are accounted for) and that you build in profit for your business and a wage for you. Time after time cashflow for a business is a constant form of stress and the owner works and works with out paying themselves, or if they do even less than minimum wage. THIS HAS TO STOP!!  
  6. I then confirmed the suggested RRP and the concept of the product line with some key retailers to felt confident there was a market before I invested in design and packaging.
  7. Looking at the spreadsheet I know that I can pick up that extra 30% I had allocated for the distributor and use that for delivery, business development and the like.
  8. If I have plans to ship across Australia, now would be the right time to try and build in those expected costs, to see if it is feasible to do so or do you need to raise your RRP now so as you don’t strip your margin later (if the market can bare the price). In my instance I feel like there is a top tier people will pay for my product. It does not matter if my costs are higher, I can’t really charge more than $4.50 for a pop. 

 

** A Distributor: In my case, once I built up my wholesale part of the business I wanted to align myself with a distributor. It is quite important than you do it yourself in the beginning. No one sells your product like you do. You will get direct feedback, see why your product is / is not selling, build relationships and loyalty, see where you need other point of sale for different scenarios and just develop a great deal of knowing.

Things I learnt building the wholesale side 

  • What flavours worked/didn’t work. I could easily suggest a combination of flavours and point people in the right direction based on my experience
  • See what kinds of businesses the pops worked best in and why they weren’t as successful in some areas. 
  • How to best to build and present our sales and on boarding information packs
  • Different hurdles and objections and how to overcome them
  • No one sees your product like you do
  • Probably a lot more but I can’t think right now!

The downside of doing it yourself is TIME and I have liked using a Distributor for a number of reasons.

  •  It can be a long sales process sometimes, with lots of follow ups (treading the line between being helpful and too intense). We are quite seasonal so I have short windows where people are “primed and more open”
  • There s the time that it takes to identify and court potential stockists. My distributor has gotten clients that I never would have thought of approaching, let alone probably gotten anywhere with. Those customers they bought on happen to be some of our biggest buyers. I never would have gotten anywhere if I had not let go.  
  • There is the time that it takes to properly service your customer after they have come on board. A Distributor has sales staff that are out on the road all the time, speaking to new customers and servicing your existing. When you are starting out, you don’t have time to do everything. You have to hand things away in order to grow. I know it can be scary, but I feel like you have to build your business with the future and growth in mind (If that’s what you want). Be careful not to strangle your business because you are too afraid to let it go
  • When I have had a little worry about farming things out, I always ask myself / promise that I will use that time to either – work on another aspect of the business to generate revenue or reduce costs. 
  • There is also the time it takes to generate invoices for separate customers, chase up debts and also deliver the goods. Sometimes we are still doing that all ourselves and not attributing the true costs of those tasks. With a distributor I  deliver one shipment to them, with one invoice. 

The hard thing I have found working with a Distributor

  • I am one step removed from the customer (as in the cafe owner, Supermarket manager) as well as the customer themself. I don’t think I get as much direct feedback and little issues I would have spotted may not get passed on. 
  • I am just one in a number of products in a catalogue. Well “duh” but that has it’s upside and downside… no one sells your product like you do. 
  • If you are not proactive you can get forgotten a little. I have just had a baby (one of the reasons why I needed the help of a distributor. It is good to keep in regular contact

Things I think you should do to (which I don’t necessarily do but should!)

  • Set targets and KPIs and review regularly
  • Set meetings and make sure that your sales reps understand your product, where it fits and how to sell it. You want to make sure your product is going into places it is successful. Not just anywhere to get one order in and never again.
  • Make sure you know which type of business / region your reps cover. Make sure they know how to sell your product and if any new reps start you need to onboard them too.
  • Try and get to know who is stocking your product so you can update your stockist list on line, promote on social media and develop a relationship with. I try and reach out at least online and say thank you for taking us on and seeing if they need any extra POS
  • If I can, check in with the stockist direct a few weeks later to see how they are going and help fix any issues.
  • Support your sales reps and give them information and material to help them do their job
  • Write a list of your ideal clients and identify businesses that you think they would work well with. Work with them to approach them 
  • Do what it takes to help you rep do their job, as you would if you had your own Business Development Rep
  • Be professional and easy to deal with
  • Be proactive about asking for feedback and suggesting reorders. 

 

I think that’s it for me. A brain dump. Unedited. I have a baby to put to sleep. Hope this helps. Pull me up on any glaring or not so glaring mistakes. I need to rework the spreadsheet a little I think.

 

Good luck. Relinquish some control. Don’t be afraid. Let your baby fly!!

Love Katie x

 

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