Advertisement for the WEFTY Needle as found in the Checker Distribution October-December 2019 Catalog.

Working with distributors is a natural step forward for a small business, and a sign that you are growing. The trajectory WEFTY took was selling retail through Instagram posts, then retail online, after which I began selling wholesale to other retailers (online as well as brick and mortar). Enough retailers requested my product from Checker Distributors that one of their buyers reached out and helped me prepare my product and business for distribution level ordering.

My biggest reason for working with distributors was that I was told by brick and mortar shop owners it would help them. Wholesale orders make more money per sale (we’ll cover this under pricing), so I wasn’t thrilled with the idea of working with making less per sale through a distributor. However, shop owners told me that when they order from distributors, they can order smaller amounts of each thing and pay one shipping fee (or no shipping fee depending on the size of their order). When they have to order from a designer or manufacturer directly, the minimum and shipping might be cost prohibitive. Not to mention the time involved with order methods that are out of the ordinary. I want to see brick and mortar shops succeed. We need them. So this was a no brainer for me.

I am pleased to report that working with distributors has been an excellent experience, and as of this post I am working with most of the major ones. My advice to you is to wait until you have yourself and your business fully prepared for distribution before taking it on, and I’ll outline what I mean by that below.

How to Work with Distributors

Step 1: Update Your Packaging

Your packaging should show what your product is and what it does. The product, or a high res and high quality photo of the product, should be clearly visible. Think about a customer who is retail shopping as you design your packaging. This person may not know your brand name or products, but be lured in by a beautiful image or intriguing product. After they are stopped by this and move in to look more closely, then they pick it up. So the front should be where all the action is. Make sure that if they pick up the package, it tells them what it is, why it exists, and how it is used. Some of that can exist on the back.

Do you have a UPC Code? This is a Universal Product Code and you’ll need a different one for each of your products in order to sell to distributors. It needs to be incorporated into your package design and be clearly visible when the package is picked up. Think about this: can the cashier easily scan the UPC? You will need to purchase your Code from a credible supplier. This is because you can’t use the same code for two or more different products, so the codes are part of a system. I get all my UPCs from Nationwide Barcode.

Make sure your packaging has a hole in it for hanging. Shops hang patterns and notions on their walls and end caps from hooks. Without a hole in your packaging meant for this, your product becomes a pain for the retailer and your packaging will look unprofessional. I order my packaging from Clear Bags.

Step 2: Price for Profitability

The best advice I ever got about pricing was to make each sale profitable going out the door. Small creative business owners will price their products competitively, or in a way they feel is “fair,” and so many times they are underpricing themselves. If you are doing that, you will not make any money on distributor sales, and may in fact lose money!

Wholesale is half of Retail and Distributor is 30% of Wholesale. If you sell your product retail for $15 normally (this is called the MSRP), wholesale will be $7.50 and distributor pricing will be $5.25. Most if not all distributors will pay shipping but take a bit more percentage off for that. Or they will pay you the 30% of wholesale and you cover shipping.

Do you know your COG yet? This is Cost of Goods, and it is the itemized cost to you of your product. It includes the cost of each wrapper, insert, and product. For example, my WEFTY Needle COG includes the actual cost of the needles from the manufacturer + package insert from the printer + plastic package. My COG is different for retail than distributor. For example, my Retail COG includes online listing fees and cost of shipping envelopes.

Maybe this is too obvious, but the COG is the cost of the item divided by the amount. Say you order 50 clear bags for patterns. Say the cost of that order is $10. The COG then of each bag is 10 divided by 50, so 20 cents. You would add 20 cents into the COG for that pattern, NOT $10.

So let’s do an exercise. You are selling a template. Your cost when you order the template from the manufacturer (that’s just the company cutting them for you), is $2.25 per template. Your package insert is 0.80 per insert, printed and folded by the printer. You use a sticky dot to attach the template to the insert, and those cost about 0.05 per. The plastic bag is 0.30 each.

Template COG: 2.25+0.80+0.05+0.30=$3.40

Now say you look around online and see that most templates of a similar size and usage to yours retail for $15-20.00. So you price yours at $15.00 because you aren’t too sure. I mean, it’s another template in a crowded market. Your follower count isn’t in the tens of thousands. It’s not like you’re big time. Let’s look at if this is profitable.

MSRP=$15.00

Wholesale (half of 15 is 7.5)=$7.50

Distributor (30% of 7.50 is 2.25)=$5.25

You will make $1.85 off of each template you sell to a distributor. That doesn’t include shipping. Profit margins like this might work if the effort isn’t much to put them together and sales of other items make up for it. And sometimes you can set order limits.

Step 3: Set Your Order Limits

I have set order limits so that each order is worth the time it takes me to package and ship it. Sometimes this means a distributor will wait to order an item. I can live with that. With the thought firmly in place that I need to make sure each sale is profitable for me going out my door, this isn’t personal or anything. It’s just protecting my time and resources so I can stay in business and keep building.

Step 4: Set Your Terms

When it comes to getting paid by a distributor, you may be asked to agree to Net 30 terms. You should do some Google research to read up a bit more about this if you have never heard of it. Simply put, and from my perspective, Net 30 means you will be paid 30 days after the payee receives the invoice for their order. Net 30 is not an attack on you. It is not someone trying to take advantage of you or ruin you financially. Either you can agree to those terms or not, depending on your situation.

I’m going to talk about getting organized later on in this post, but basically you should be set up to invoice in a timely manner no matter the terms, and be prepared to double check every order. If you decline Net 30, be courteous and respectful in your explanation. “Unfortunately I’m not set up for that yet,” is a fine response.

When I read up on Net 30, one suggestion was to request credit references from customers before agreeing to those terms. You can also ask around if you know other small business owners. Was this customer timely with their payment? Did you have to remind them? Have you ever had payment methods fall through? The major distributors have been in business a long time and rely on their own consistency and reliability to retain vendors and stay in business. Therefor, I’ve not been too worried when agreeing to terms with them. I do my own audit every few months to make sure each invoice has received a payment - not because I have trust issues, but because the onus is on me to get paid for my work, and human error is just a natural part of life.

Step 5: Decide About Exclusivity

I have chosen not to work exclusively with one distributor. Exclusivity with one distributor would mean I am dependent on them for all marketing, sales representation with retailers, and orders. I would certainly be missing the shops who don’t order from them. I would miss out on orders from shops who weren’t able to meet with their rep that day. I would miss out on the orders from the reps who don’t understand the product or were focused on showcasing another product during that meeting. Working with several distributors means casting a wider net and therefore increasing my chances of making sales.

Advertisement for WEFTY product line in Brewer Distributors Catalog.

What I’ve learned from working with several different distributors is that they each have ebbs and flows, just like we little guys do. Some months I get a nice sized order, and another month I don’t get an order at all. And they each have unique strengths. One distributor I work with is a tight ship: highly organized with great marketing reach. Another has skilled and talented sales reps, one of whom has gotten really into weaving and loves showing off her makes to shop owners. Yet another has strong contacts and shipping infrastructure in Canada, which is a market I struggle with due to the high shipping cost.

You may be asked to sell exclusively through a distributor. They ask not because you owe them that, but because in business you just ask for stuff. Just to see. The worst is you’ll say no. And your job is to say no. It’s hard, but you can (and will) work with them after saying no. They’re not crushed! I promise! And if you saying no now is a deal breaker for them, that doesn’t mean they won’t come back later ready to work with you on your terms. It’s not personal, so be polite, professional, and positive in your dealings at all times.

Sales sheets for WEFTY Product line as carried by United Notions sales reps.

Step 6: Prepare for Retail Competition

Anyone with a resale ID and the ability to meet order minimums can buy your product from your distributors. They may sell your product on Etsy, Amazon, eBay, or at their garage sale. Maybe they sell for twice your MSRP. Maybe they sell for barely over the wholesale price they paid for it. You may feel frustrated by online retailers underselling, and wonder if you should exact some sort of MSRP agreement. Meaning, each retailer would need to agree to sell only at the MSRP or risk losing their account with you. This would be extremely difficult and prohibitively time consuming to enforce. And truly, your only concern should be if you made enough money off of the sale to make it profitable for you. The rest is outside of your control. Focus on making sure your customer service is beyond excellent, run sales if you have the time and inclination, and ensure your pricing allows you to profit from distributor sales.

If your concern lies in the impact online underselling has on brick and mortar shops, I am right there with you.

Some things that are within your control to do:

Highlight shops you know carry your product on social and your blog
Repost and link to classes being taught using your patterns or products
Teach a class at your local shop
Provide a traveling trunk show
Remember that by working with a distributor you are helping the shop carry your product more easily than if they had to order from you directly

Step 7: Get Organized

You’ll want to make sure you are organized and prepared for orders. This means having boxes and shipping materials on hand (I use 100% recycled materials saved in my basement), a constant inventory of pre-packaged product that’s ready to go, and packing tape. You can also set shipping lead times in your contracts and Vendor agreements. This just means that you are telling them you need a week (or however long) to ship after receiving an order. I believe my contracts all state I need a minimum of 7 days to ship. Orders come in once or twice a month and you never know what the size of the order will be. They often start small, then ebb and flow over the course of the year.

You will want professional looking Packing Slips & Invoices. Find templates online to modify and add your logo to. Make sure you include the PO number, and keep the numbers updated so you aren’t sending Invoice 03 to two different distributors. Not that you would. Not that I did. Keep contacts on file for who your buyer is and who receives invoices.

I have a check off list for every Purchase Order:

Package Order
Packing Slip Included
Shipping Label Purchased and Affixed
Tracking Number Sent To Buyer
Invoice Sent

Step 8: Retailers are Not Distributors and You Need to Know the Difference

You’ll have retailers ask for distribution pricing. It’s business. People ask for stuff. If they get distribution pricing on a $15 MSRP product, they’ll make $9.75 as opposed to $7.50 per item and who doesn’t want an extra $2.25 per sale in their pocket? Plus with that kind of wiggle room they could afford to run ads or sell for slightly less. They may say that with their volume of ordering they ask for the discount, but I have not found that the volume most retailers order would warrant a discount. I have had two people (but independent small business owners) put in what I would consider “massive” orders and what I did was offer free shipping as a discount. A while back I enacted a blanket policy to only offer distribution pricing to distributors. I did this in the interest of fairness and consistency. While some distributors offer deals in turn to certain retailers, that’s beyond my control, and again, my job is to price each of my products so that any sale is profitable when it leaves my front door.

I hope this has helped you as you plan for this next step in your business! Any questions, make sure to ask in the comments and I’ll address them here or in a later post. Thanks for reading!

-Tara

Small DIY Craft Business Advice: Working with a Distributor