Approching distributors with new product. Advice/input?

I have designed and sold a product for the last year. quality product, good market in my area for the product, received good reviews from customers and sales are OK. (industrial product sold to other businesses. Common like a gas cap. but lack of visibility hurts sales.) In saying that, we are a small machine shop and I feel it would be better for sales, customer support and accessory supply if we partnered with a distributor in our region, allowing us to focus on production and new products while leveraging their sales team, storefront and customer support.

Selling through a 3rd party like this is new to me.
Having a relationship as a customer, I spoke with the local manager about my product, He feels its a good fit and I should approach the new product team at head office.

In saying all this I am looking for any advice on approach, demonstration, value proposition and of course any pitfalls to be mindful of.

Than you all for your valuable input.

Salesman...if worth their weight, should be seeking you out, wanting to
sell on commission only.

Do you have a website yet. Should have lots of content. Describing your products, advantages, features. Search crawlers love that stuff. Good pictures, with picture file name something that makes sense ( not image 34522). Helps your site come up organically ( free to you) to potential customers. Also create a google adwords account. Purchase some keywords. You can set a budget and everything. Google techs will guide you over the phone for hours if needed to set up adwords properly and effectively, for free.

I know someone who sells a product through MSC. I dont know how he got the deal done but that would be a place to start.

MSC, Grainger, McMaster, etc. All distribute to industry.

Did you leave enough margin for retailers

Items under 100 bucks they are going to want 100 percent markup
It drops above that

Your opinion on that number is unimportant
If you are unable to sell a product that retails for 100 for 50 bucks they will be in interested

I wish you the best on this quest. My two cents of life experience doing such things are this:

Don't be surprised at the percentage the distributor will want on their end to be interested. If you've already established a list price in the retail market, then you need to be mindful your cut goes down from that target possibly.

They need to be committed to a quantity purchase each P.O. to deserve their discount IMHO.

You want to be a good supplier for a long term relationship. Another way to put that could be "be careful what you wish for". My point is, be prepared for a potential volume of sales you are not used to, and have a plan to scale up production if you receive that surprise in sales numbers. Nobody wants to represent a product in their catalog, etc., and then shortly have to inform customers you are in a back order mode.

I don't know what you are selling, but the above can happen, and happen quick. It's kind of a champagne problem at first. I'll give you a real life example from Snap-On tools. The rep I was talking with said it was an age old problem for them when they took on an outside product. They would warn the manufacturer ahead of time but many never quite realized the selling power of a large and well organized corporation. Next thing you know it's in back order mode and that is not good for many, many reasons.

One last nugget. If what you mfg. contains any other components you purchase from a vendor(s), be sure that supply chain can always supply what you need. I've had that bring me to my knees and sadly a lesson I've had to learn again more than I care to admit. Choose those sources/suppliers carefully and have back up sources even it the price is not agreeable, so you can keep moving.

gusmadison said:

You want to be a good supplier for a long term relationship. Another way to put that could be "be careful what you wish for". My point is, be prepared for a potential volume of sales you are not used to, and have a plan to scale up production if you receive that surprise in sales numbers. Nobody wants to represent a product in their catalog, etc., and then shortly have to inform customers you are in a back order mode.

I don't know what you are selling, but the above can happen, and happen quick. It's kind of a champagne problem at first. I'll give you a real life example from Snap-On tools. The rep I was talking with said it was an age old problem for them when they took on an outside product. They would warn the manufacturer ahead of time but many never quite realized the selling power of a large and well organized corporation. Next thing you know it's in back order mode and that is not good for many, many reasons.

One last nugget. If what you mfg. contains any other components you purchase from a vendor(s), be sure that supply chain can always supply what you need. I've had that bring me to my knees and sadly a lesson I've had to learn again more than I care to admit. Choose those sources/suppliers carefully and have back up sources even it the price is not agreeable, so you can keep moving.

Click to expand...

A closely related gotcha is the pent-up demand effect which can seriously distort everyones, including a big, experienced distributor, perception of what the real, sustainable market is.

Suppose 1,000 customers a year would buy your product and folk started noticing the need 10 years ago. So by now you have 11,000 potential customers waiting to snap up this years production. Takes a while for the word to get round the potential customers who needed your device and even then many won't want to buy right now. "That's nice, wish it was around X years ago but we've managed without so not gonna buy one right now. Maybe when I have spare cash." sort of thing. With a decent distributor pushing things you will mop up the backlog customers fairly quickly as well as selling to this years customers. So if it takes 4 or 5 years to mop up the backlog you might have production ramped up to 3,500 or so a year and be really happy. But when the backlog has gone you are back to your sustainable market of 1,000 new customers every year. Ending up vastly over invested in production capacity.

Ooops!

Then the distributor decides only 1,000 a year isn't worth the catalogue space. Disaster unless you can pivot to direct web sales to a smaller market riding on the back of the distributor generated publicity. Still got all the production capacity lying around but, if you have played the finance cards right it shouldn't owe you so much that it can't be used for your next great idea.

You have to partner with a distributor that knows the market and will be with you for the long term. Not a pump up on pent up demand then dump outfit. Unfortunately if a company is run for the money, not the business, pump'n dump generates the best short term capital returns. Very attractive to short term hire top management who expect to jump ship in a few years.

Clive

There's distribution, and there's marketing. Which do you need, and which do they offer?

You need distribution if you need inventory over a broad geography and/or need the fulfillment aspect. If you're not 'visible', you need marketing. Maybe you need both....although in the interent age direct mail order fulfillment is easier than ever. The same firm may or may not offer both and some may offer some of both, but if you need marketing, and what you are a getting is only distribution, you won't get much visibility.

Gustafson

"Did you leave enough margin for retailers"

the item is over $100 for sure, with volumes it would be no problem to allow the distributor 50-75% markup and remain cost competitive with competing products. even at 100% markup(me lowering my cut), key being volume. current production costs allow for this, and volume would bring them down a little as well.


gusmadison

"I don't know what you are selling, but the above can happen, and happen quick. It's kind of a champagne problem at first. I'll give you a real life example from Snap-On tools. The rep I was talking with said it was an age old problem for them when they took on an outside product. They would warn the manufacturer ahead of time but many never quite realized the selling power of a large and well organized corporation. Next thing you know it's in back order mode and that is not good for many, many reasons.

One last nugget. If what you mfg. contains any other components you purchase from a vendor(s), be sure that supply chain can always supply what you need. I've had that bring me to my knees and sadly a lesson I've had to learn again more than I care to admit"



these 2 scenarios are defiantly a concern. 2 items to my product are from a vendor, I believe they are reliable, and in the event they are not, they provide a fairly standard product I could source, though lead time may be an issue should that be the case.

personally I have reasonable capacity to turn out a strong demand for my product and would be prepared to invest should I become overwhelmed. fortunately we are in a reasonable cash position with no machine payments. but as Clive603 has mentioned I would not want to find myself in the possession of a bunch of shinny equipment for nothing!
then again I have never done this, if the product "champagned" hard. there may be a backorder. though I our current economy up north, I feel any product would have a soft start...


fmari --MariTool

Thanks for the advice, if the I cannot find a suitable distributor I will be perusing this direction more, I currently market online and have been selling within my region ok'ish.
the problem I've been having is brand recognition/trust. Its a new brand to people and it seems like every buyer wants to call and talk about it 3 times, mull it over, maybe... all fine and dandy, but the time involved takes the profit out of the job (when I could be selling/spinning parts)
It just feels like people walk into a distributor to buy things. you carry it, good enough I trust your brand. where being small direct sales its so much tire kicking! if I could sell 1000, and a distributor 10,000 for half the margin, id take the 10,000 and keep the machines going



Thank you all for your advice, the insights are very appreciated!

gusmadison said:

contains any other components you purchase from a vendor(s), be sure that supply chain can always supply what you need. I've had that bring me to my knees and sadly a lesson I've had to learn again more than I care to admit. Choose those sources/suppliers carefully and have back up sources even it the price is not agreeable, so you can keep moving.

Click to expand...

This is something I have had cripple me as well.

Nothing is worse than doing what you think is due diligence to make sure something will be available in the timeframe and quantities you need as you are developing then a couple months later you go to place the big order and they are sold out with a 9 month lead time.

Mcgyver said:

There's distribution, and there's marketing. Which do you need, and which do they offer?

You need distribution if you need inventory over a broad geography and/or need the fulfillment aspect. If you're not 'visible', you need marketing. Maybe you need both....although in the interent age direct mail order fulfillment is easier than ever. The same firm may or may not offer both and some may offer some of both, but if you need marketing, and what you are a getting is only distribution, you won't get much visibility.

Click to expand...

I think this is where the particular distributor I am approaching ticks the most boxes.
They are popular and visible for the demographic I will need to target. Good display frontage and abundant foot traffic for off the street customers.
I think that is where I see the value, foot traffic visibility creating brand familiarity, order fulfilment and sales. It is on the sales and strong pursuit of new customers that I will need more information on through our talks. Being a automotive accessory a strong push to fleet dealerships would be a must for good baseline sales growth. Again I feel the backing of a distributor would give fleet customers confidence and order fulfillment while allowing me to focus on what I do best, manage the shop/make new products.

all these talking points are very useful, thank you all! I will defiantly be adding them to my talking points during our meetings.

Excellent response from You.
Now, critical test ..
Has that distributor ever made one manufacturer or inventor wealthy and successful, or ever sold a lot of product profitably ?
Ask them for a reference.

If there is no reference, You are betting that Your particular product will be the very first one, that succeeds for You.
... or The distributor could not come up with 1 client that was very successful with them.

If they state something like sunshine margarine, then call sunshine margarine.
100% of all successful companies are happy to talk to investors relations - You.

Stirling said:

I think this is where the particular distributor I am approaching ticks the most boxes.

They are popular and visible for the demographic I will need to target. Good display frontage and abundant foot traffic for off the street customers.
I think that is where I see the value, foot traffic visibility creating brand familiarity, order fulfilment and sales. It is on the sales and strong pursuit of new customers that I will need more information on through our talks. Being a automotive accessory a strong push to fleet dealerships would be a must for good baseline sales growth. Again I feel the backing of a distributor would give fleet customers confidence and order fulfillment while allowing me to focus on what I do best, manage the shop/make new products.

all these talking points are very useful, thank you all! I will defiantly be adding them to my talking points during our meetings.

Click to expand...

hanermo said:

Excellent response from You.
Now, critical test ..
Has that distributor ever made one manufacturer or inventor wealthy and successful, or ever sold a lot of product profitably ?
Ask them for a reference.

If there is no reference, You are betting that Your particular product will be the very first one, that succeeds for You.
... or The distributor could not come up with 1 client that was very successful with them.

If they state something like sunshine margarine, then call sunshine margarine.
100% of all successful companies are happy to talk to investors relations - You.

Click to expand...

A list of references from the distributor would be beneficial, provided I play the card at the correct time and don't come off as an A-hole.

I think another thing I get from your statement is thoughts on exclusivity of the product to one distributor. It may be to my benefit (?) to offer, say 1 of 3 available exclusive slots, or something along that line. This could put me in a position with some bargaining chips.

Last think I want is to come in looking like a unprepared child that is begging for a handout.

Another thing to worry about is if you show your product to someone else how is it protected. Any reason they can not contact their people in China and have them make it for them to sell and keep you out of the money loop? Do you have a copyright or patent.
Bil lD

Stirling said:

I think another thing I get from your statement is thoughts on exclusivity of the product to one distributor.

Click to expand...

If ever selling a product exclusively through one distributer I would make sure that there was a solid agreement on minimum product that they need to move to keep exclusivity. Easy for a large distributer to not care whether or not your product moves since it makes up a micro fraction of there business, but you could have say half or all of your business riding on it now stuck in a contract with nowhere to go. (no personal experience in this)

Distribution as a business model is dying because of the internet. Get yourself a website that is user-friendly and sell and ship direct—unless it would be worth it to you to pay out half the selling price to somebody else to stock and sell it. Or worse, to stock it and not sell any, and then want to return unsold goods (what distributors call a "stock adjustment"). The value of a distributor mostly depends on how big a PITA your potential client base is. To me, the better way is to sell direct and keep all the money yourself.

It's actually more complex than just the few sentences above, but it still boils down to keeping the money.

I have a manufacturing business, and we largely only sell to wholesalers and distributors. It is good and bad. You would hope that the distributor will support you, market you product, which sometimes they do... to an extent.

One thing I will warn of, is double, triple dipping. Such that they are a distributor, get the best pricing from you, and also have a online retail business where they sell your product for retail margins. It allows them to really offer deals on your products that no one can compete with. You should set a MAP price (minimum advertised price) if you believe your products will be sold to someone who can envelop a low margin just for some turns with your product. Enforcement of MAP pricing is another subject all together.

Stirling said:

I have designed and sold a product for the last year. quality product, good market in my area for the product, received good reviews from customers and sales are OK. (industrial product sold to other businesses. Common like a gas cap. but lack of visibility hurts sales.) In saying that, we are a small machine shop and I feel it would be better for sales, customer support and accessory supply if we partnered with a distributor in our region, allowing us to focus on production and new products while leveraging their sales team, storefront and customer support.

Selling through a 3rd party like this is new to me.
Having a relationship as a customer, I spoke with the local manager about my product, He feels its a good fit and I should approach the new product team at head office.

In saying all this I am looking for any advice on approach, demonstration, value proposition and of course any pitfalls to be mindful of.

Than you all for your valuable input.

Click to expand...

What is a (local) distributor going to do for you that you can't do for yourself? Not only will a distributor want a large part of your profit but will also have other products to sell. How do you get high on his priority scale?

Just a thought but by using a distributor you could end up making less money from producing 1,000 and being sold by a distributor than making 400 or less and selling them yourself.

As suggested in post #2 a good salesperson with contacts on commission could be sensible. Pay the person a basic salary plus commission on sales. You'd be in control and not a distributor.

A website is a must!!!!! If you want to go further than locally.

Oldwrench said:

Distribution as a business model is dying because of the internet.

Click to expand...

It is and it isn't

The internet is huge[yooooge] and finding your product in a mountain of competition is difficult

I decided[before the internet] to market my products to resellers, and it continues to work well.

People in specialty industries don't just search the internet.

Think about us, do you buy your cutting tools on Amazon? Maybe, but frequently it is easier to go to a trusted source. You tend to buy a bunch of things at a time so shipping becomes unimportant. Mcmaster may not be the cheapest, but the quality is consistent and it is here tomorrow, always. They next day air stuff from Chicago at no cost when they run out in NJ. I placed an order on a Saturday so I wouldn't forget, and they next day aired it from CA for monday. I think the shipping was 6 bucks or something

That said, one of the ways I became successful[if only modestly so] is cutting out levels of supply chain. I buy from manufacturers and sell both in distribution and to wholesale customers.

I choose not to sell retail because it makes me in competition with my customers. Large stocking retailers do not want to see you on ebay competing with them. And the astonished call you get from a small retailer after referring a retail customer to them[who you easily could have made an additional 50 bucks from] ensures their loyalty for years. Some of these smaller guys make me thousands a year, what is that 50 bucks if I lose that loyalty?

The world is changing, but it isn't

gustafson said:

The internet is huge[yooooge] and finding your product in a mountain of competition is difficult

Click to expand...

A good reason to stake out a niche, and advertise in print media read by that niche. Feature your website in a few fullpage ads and your traffic immediately goes up.

I decided[before the internet] to market my products to resellers, and it continues to work well.

Click to expand...

Twenty years ago we had about 130 resellers. All it takes in one whore to reduce the de facto selling price of your product (and incidentally alienate all your other resellers). The fewer resellers the better, as you have more communication and control. Today we have one for the Euro countries, one for the Pacific Rim, and one in the US who distributes to the NASCAR teams. Those three companies absorb 90% of the negotiations and general ass ache of dealing with corporate automotive/motorsport clients with massive egos, and for that I am happy to give them their piece of the action. They earn it, big time. In the distributors' territories, as long as we only have technical/engineering communication with the prospect and let the distributor make the offer for sale it works beautifully. But all the rest of the USA and the non-euro countries is wide open territory, never again to be relinquished to hucksters.

People in specialty industries don't just search the internet.

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I agree, but would say it's because they already know the players and have their sites bookmarked. If you are in a truly specialized industry you don't want your site prioritized by search engines, because you get too many calls from fools surfing the web on their phones. We actually canceled a magazine ad program because it resulted in too many inquiries from timewasters. Specialized industries have an effective word of mouth—the smaller the field the faster and more effective it is.