Friday, December 12, 2008

Free-Enterprise Friday

(Continuing the sharing of my failed and successful experiences at getting a new product created.)

To be a wholesaler or not to be a wholesaler - that is the question.

Generally speaking, if you have no intention, desire or ability to run a retail store, and you are creating your own product, you want to begin as a wholesaler. What this means is that you will sell your product directly to retailers or other companies that would in turn sell your product to the customer. You can always add a retail license to your company, so my advice is to start off as a wholesaler and build from there.

However, if you are a wholesaler, you can NOT sell directly to the customer. Nope, to be able to do that you need a retail license.

Another time I will go into how you obtain a license. Right now, we are still in the planning stages after determining that your product idea has feasibility.

I determined that since I had a product I would like to sell, but I didn't want to deal with customer support, on-line orders or all of the other details retail stores deal with, I went the wholesale route. That decision cut my projected expenses significantly. It also makes it harder to advertise or market your product.

Once I figured out that I was going to be a wholesaler, I knew that I had to offer my price to retail chains for about 1/2 of the cost they would sell my labels for. So, for example, if I know that no one would pay more than $10 for my labels, I would need to make certain I could sell my labels to retail chains for no more than $5 per pack. Otherwise, the retail chain will sell the product for more than what I think customers would pay.

No retail presence = no sales!

Since I had a pretty good idea that customers wouldn't pay more than $10 for my labels, I went about making certain I could sell my product for $5 or less per pack and still cover all of my expenses AND make a small profit.

I think that ideally, you want your profit to be enough so that if you manage to sell 1/2 of your stock, you have enough money to reorder a full supply from the manufacturer. This is not based off of extensive research or fact, but it is based on my own experience - so therefore it is completely subjective. I ordered a large number of my product to be manufactured in order to keep my costs down, so it would take a while before I would need to reorder.  If the rate of demand for my product continues to grow steadily, this formula will work until I decide I need to order a greater bulk from the manufacturer.

But to start off, this seems like a decent short-term goal for my company to have.

Let's say you have a product that costs $10,000.00 to make 5,000 of them. You need to make certain that you have cleared at least $10,000.00 by the time you have sold 2,500 of your product, so you can order more without ever being out of stock in your warehouse.

This may not be possible to do when you first begin your company, but it should most definitely be the first goal you make for your company. This is what will get your company from the red to the black financially.

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