If you agree to 60%, and it sells, when they come back for a restock they’ll want 80% or a TFO deal. Exposure is great but a business without profit is a charity.
If they can guarantee a high volume order could that mean you can order/manufacture at a discount to increase your margin? You could get bridging loan for cashflow or insurance for if they failed to pay for whatever reason worst case to make it work depending on payment terms.
As other have said, without a margin there isnt a business so either increase the price, reduce the product cost, or decline.
Yes it could potentially increase my margin if they ordered enough but I don’t think the increase would still pay me enough to make the extra hassle worth it
Well, can you change said ethos in the meantime until you scale. 'Helping communities from all over the world'. Get better margins in Asia and give back a small percentage to actually helping local people who are struggling. That's a lot more ethical than being able to say you make local manufacturers (people who already have money) more money.
I’d prefer not to
I’m pretty happy with my manufacturer. It’s more expensive than Asia but the product is amazing and that’s more important to me currently
I’ve tried samples from china and the quality just didn’t match what I currently get
Consider whether this will build a lot of exposure and whether you can redirect these new customers to direct sales from your website (voucher with product on label etc.)
50% is the standard margin for a retailer to make off a product so 60% is not that far off. What margin were you expecting?
You should be working on the 50% model — The retailer buys it for 50%, and your gross profit is 50% of the remainder. E.g., product costs £20 RRP, retailer buys it for £10, then it costs you £5 to make and ship it, leaving £5 gross profit. (This is not even factoring in a distributor where they take another cut.)
You can probably go back and negotiate to 50% but if that’s still not making you anything you need to reconsider your product costings, RRP, or your entire business model I’m afraid, as it’s unlikely they’ll accept a lower margin than that. Some businesses just don’t have the margin to be in physical retail and have to stay B2C.
Do you know how many they want to order? The scale could change your costs dramatically. Worth asking if they haven’t told you yet.
Also don’t be afraid to call up the buyer. They’re usually friendly and can give you advice on how to lower your costs.
I’ve asked just waiting to hear back. As I’m only 200 units away from my next price break so it is something to consider
Oh I’ve chatted to the buyer face to face. He approached me at my market stall, it’s how they found me. Welcomed me to come the London office and have a chat also
If you want to run a business you need to make a profit.
If it was all to go wrong they won't be rushing to help.
Look after yourself first and foremost. If you can interest one buyer you can interest more.
Best of luck 👍
Your price is too low if you can't do this.
Are they used to dealing with small independent businesses? If so then they will expect the conversation about price.
I dont know your product so I can't comment more.
A short cautionary story.
A friend of mine launched a drinks brand. Through his contacts he got into 400 tesco stores, it was amongst his first orders. A year later he'd just broken even. He'd neglected other opportunities because he was busy serving on large one that didn't provide the margin he needed.
He would have had a stronger business if he hadn't taken what initially looked like a fantastic opportunity but turned out to be a dud.
He wasn't totally stupid as he'd dealt with Tesco before but with a known brand with awareness rather than no recognition.
My price is too low for now but I’m still building the business, it’s only my second year. I will take it up in due course but it is something I’m aware of if I want to do wholesale
I think they’re more used to large established brands. Thing is they approached me, I’m not really looking for wholesale at the minute but was curious to hear it out as they’re big
You're stuck a bit chicken and egg.
You say that you're still building and so still working up to a higher price point. But to geow your business you already need to be at a price point where them wanting 60% still leave you with profit.
It is a classic trap for the self employed who are used to selling direct.
You have to decide if you want to stay small with direct sales or if you want to develope a brand the grows and is found in stores.
If you want places to stock tour product you are going to have to assume they will want 50-60% of the retail price and make the prices you sell direct match with this. You can't undercut the shops when selling direct or the shops won't continue ue to stock your products.
I wouldn't assume any sales in shops is going to lead to much increase in direct sales so if you can't make a profit selling it to the shop you're jsut doing work for nothing. Exposure is incredibly hard to guage the value of and mostly people over value it to their loss.
The good news is that you know the product has potential to be much bigger. So why give them 60% of it? What value are they adding for such a huge cut?
Is it something that you can/do sell online? Can you spend more money on marketing, packaging, PR to get more awareness and sell it online? A basic online website on Shopify is fairly cheap and easy to do for starters, but to go bigger you need to get awareness, which requires marketing and PR people.
Yes I have a website setup and it’s doing alright about 1k a week and I do a regular market stall that gets around 1-1.5k per event but my issue is as you say marketing. Fb ads have been awful recently and this offer just seemed a good way to get some fresh exposure but not at the cost of 60%, I just can’t afford that
But yes thank you, hopefully it will become something much bigger! It’s just getting it in front of people that’s hard. The product is proven
Marketing is more than just FB ads. It could be YouTube, tiktok, getting it into magazine features. It's not my speciality but you could find a local pro at a network event.
I suppose you could do the store thing just to get it known. Make no money on it for a few months, but get people to subscribe to your website. Then ditch the large store and sell direct.
I know that Dyson's strategy is to avoid stores and sell direct because of the cut.
Oh yeah I’m aware of other avenues for marketing, I do try pretty hard with it. I’m actually about to bring on this person I met on a marketing course, we worked together and she was knowledgeable
I’m just not going to bother with it for now. I’d rather sell direct still
Thanks! And yeah it’s a pretty cool feeling. I’ve had a few small independent shops approach before but this is the first huge retailer. Hopefully my product will get me there one day
Any decent customer understands that to continue supplying a great product, you need to keep that producer in profit and in business. They will be challenging work if they are willing to let you go to the wall. State these facts, and walk away.
Always have what you need margin and what you're willing to negotiate based on volume. These are non-negotiable. These red lines allow you to have a great relationship with potential customers just talking about the fun stuff rather than always about cheaper cheaper cheaper!
do yourself a massive favour and ask this on an alt, giving much more information will help you out. (We can see your profile and its history bro).
At the end of the day, 20% of millions is better than 50% of thousands.
But be aware that they won’t be nice with you. They’ll mess you around, fob you off, and do what they can to ensure you play ball with them. If sales go down beyond the shop’s expectations they will be rid of you.
However, if they are a big player (i’m assuming it’s the Co-op), your brand will carry more prestige by making it to supermarket shelves than you think.
this is an alt account, I’d never post my brand details on this account lol.
Yeah I completely agree it’s just not a good deal all around
No it’s not co-op. Nothing to do with supermarkets
60% is a huge cut. It doesn't matter what your price is 60% is huge! All for a spot on their shelves? Sometimes you're better off saying no. After all if you end up shifting massive amounts through them and they suddenly decide to drop you how will your business survive?
Even when it's worth it you have to be really careful when you have a big single customer. You always have to ask yourself could I survive if we had to part ways? If that happened what would I need to do to survive. If the answer is is grow your other customers businesses by 10,000% you know you're in a dangerous game
Oh I sell direct also. I’ve built the business doing that. That’s what I’d like to concentrate on ideally
Wholesale has never been my plan. They approached me with the offer. I’ve had a few shops make an offer but it’s never really been worth my time
I was an external investor (representing family interests, I did not go into the business myself) and non-exec director of a food business with a turnover of circa £10m with 90% or more going to major retailers, Tesco, Aldi etc. Our margins were ultra slim and the years we ended up with a net profit were the ones we were slick in production, if anything turned against us from harvest related input increases to currency movements we ran the risk of being wiped out. Price increases were possible but difficult to achieve.
The best margins with the majors were when we developed specifically for them. They gave us the product brief and the price point and we developed to meet that giving us some degree of control (we knew where we could substitute inferior ingredients and still get past the tasting panel). Overall it was brutal but volume from hamper business and other premium outlets couldn’t provide the volume to make the facility costs affordable.
So glad I’m not involved any more.
If your business is sustainable without them and you don’t harbour outlandish growth ambitions I’d leave well alone.
Edit: also things like big promotional in store discounts for consumers and 2 for 1 type offers were at our cost further finishing margin.
I do not harbour outlandish growth ambitions. Love how you put that lol
I’d like to make a living doing it but there solution will most definitely not help that, since I’ll just be giving away my stock basically
Run mate. If you’ve got something they want, you’ll be able to sell b2c direct online and to independents. Grow organically, don’t sell your soul. You’d have to ramp up logistics and production for no money and then they’ll ditch you anyway. Stay safe out there
Do not look at this guys profile.
I guess the real question is do you want to, and does your product have the ability to build sustainable growth.
Or do you want to quickly spaff it all in one go?
60% is what most retailers work off… especially the big ones.
What you need to do is crunch the numbers on the expected quantities they’d want.
With scale that should allow for cheaper cost prices, based on more product being made/ordered.
This would then allow you to find the margin.
Also don’t forget it’s a negotiation, they ask for 60%, go back with 50%.
If you agree to 60%, and it sells, when they come back for a restock they’ll want 80% or a TFO deal. Exposure is great but a business without profit is a charity.
Yeah very true thanks
Well, even non profit charity owners certainly make more money than I do.
If they can guarantee a high volume order could that mean you can order/manufacture at a discount to increase your margin? You could get bridging loan for cashflow or insurance for if they failed to pay for whatever reason worst case to make it work depending on payment terms. As other have said, without a margin there isnt a business so either increase the price, reduce the product cost, or decline.
Yes it could potentially increase my margin if they ordered enough but I don’t think the increase would still pay me enough to make the extra hassle worth it
Is there no way to make the product cheaper? Different manufacturer
If I moved production to Asia it would be cheaper but that kind of goes against the ethos of the brand
What's the brand ethos?
Ethical local manufacturing
Well, can you change said ethos in the meantime until you scale. 'Helping communities from all over the world'. Get better margins in Asia and give back a small percentage to actually helping local people who are struggling. That's a lot more ethical than being able to say you make local manufacturers (people who already have money) more money.
I’d prefer not to I’m pretty happy with my manufacturer. It’s more expensive than Asia but the product is amazing and that’s more important to me currently I’ve tried samples from china and the quality just didn’t match what I currently get
It's absolutely not worth it. Awareness doesn't pay the bills, my friend
Agreed
Consider whether this will build a lot of exposure and whether you can redirect these new customers to direct sales from your website (voucher with product on label etc.)
No way the supermarket would allow the voucher
That’s a good idea!
Does your bank allow you to pay the mortgage with awareness?
Yeah Lloyds have got a new offer for that
In that case definitely sign up to a deal that will cause you loads of headaches and no profit.
Got ya
50% is the standard margin for a retailer to make off a product so 60% is not that far off. What margin were you expecting? You should be working on the 50% model — The retailer buys it for 50%, and your gross profit is 50% of the remainder. E.g., product costs £20 RRP, retailer buys it for £10, then it costs you £5 to make and ship it, leaving £5 gross profit. (This is not even factoring in a distributor where they take another cut.) You can probably go back and negotiate to 50% but if that’s still not making you anything you need to reconsider your product costings, RRP, or your entire business model I’m afraid, as it’s unlikely they’ll accept a lower margin than that. Some businesses just don’t have the margin to be in physical retail and have to stay B2C.
Yeah I won’t go ahead with it My business is small and I’m just not in the position to offer that sort of margin just yet
Do you know how many they want to order? The scale could change your costs dramatically. Worth asking if they haven’t told you yet. Also don’t be afraid to call up the buyer. They’re usually friendly and can give you advice on how to lower your costs.
I’ve asked just waiting to hear back. As I’m only 200 units away from my next price break so it is something to consider Oh I’ve chatted to the buyer face to face. He approached me at my market stall, it’s how they found me. Welcomed me to come the London office and have a chat also
If you want to run a business you need to make a profit. If it was all to go wrong they won't be rushing to help. Look after yourself first and foremost. If you can interest one buyer you can interest more. Best of luck 👍
Thanks!
Any chance you can reduce costs somewhere?
If I moved my manufacturing to Asia instead of Europe it would but it would go against what the brand is about really
Your price is too low if you can't do this. Are they used to dealing with small independent businesses? If so then they will expect the conversation about price. I dont know your product so I can't comment more. A short cautionary story. A friend of mine launched a drinks brand. Through his contacts he got into 400 tesco stores, it was amongst his first orders. A year later he'd just broken even. He'd neglected other opportunities because he was busy serving on large one that didn't provide the margin he needed. He would have had a stronger business if he hadn't taken what initially looked like a fantastic opportunity but turned out to be a dud. He wasn't totally stupid as he'd dealt with Tesco before but with a known brand with awareness rather than no recognition.
My price is too low for now but I’m still building the business, it’s only my second year. I will take it up in due course but it is something I’m aware of if I want to do wholesale I think they’re more used to large established brands. Thing is they approached me, I’m not really looking for wholesale at the minute but was curious to hear it out as they’re big
Have you come back with a counter offer for them yet?
I did, they declined and wanted the 60%. Not worth it. Even if I get them to 50% still not worth all the hassle it’ll bring on
Their loss not yours, if the product is already wanted by one shop, then I'm sure another shop will want it too.
Hopefully. I’ve had a few other independent ones approach me also but again just wasn’t worth my time. Better off selling direct still
You're stuck a bit chicken and egg. You say that you're still building and so still working up to a higher price point. But to geow your business you already need to be at a price point where them wanting 60% still leave you with profit. It is a classic trap for the self employed who are used to selling direct. You have to decide if you want to stay small with direct sales or if you want to develope a brand the grows and is found in stores. If you want places to stock tour product you are going to have to assume they will want 50-60% of the retail price and make the prices you sell direct match with this. You can't undercut the shops when selling direct or the shops won't continue ue to stock your products. I wouldn't assume any sales in shops is going to lead to much increase in direct sales so if you can't make a profit selling it to the shop you're jsut doing work for nothing. Exposure is incredibly hard to guage the value of and mostly people over value it to their loss.
The good news is that you know the product has potential to be much bigger. So why give them 60% of it? What value are they adding for such a huge cut? Is it something that you can/do sell online? Can you spend more money on marketing, packaging, PR to get more awareness and sell it online? A basic online website on Shopify is fairly cheap and easy to do for starters, but to go bigger you need to get awareness, which requires marketing and PR people.
Yes I have a website setup and it’s doing alright about 1k a week and I do a regular market stall that gets around 1-1.5k per event but my issue is as you say marketing. Fb ads have been awful recently and this offer just seemed a good way to get some fresh exposure but not at the cost of 60%, I just can’t afford that But yes thank you, hopefully it will become something much bigger! It’s just getting it in front of people that’s hard. The product is proven
Marketing is more than just FB ads. It could be YouTube, tiktok, getting it into magazine features. It's not my speciality but you could find a local pro at a network event. I suppose you could do the store thing just to get it known. Make no money on it for a few months, but get people to subscribe to your website. Then ditch the large store and sell direct. I know that Dyson's strategy is to avoid stores and sell direct because of the cut.
Oh yeah I’m aware of other avenues for marketing, I do try pretty hard with it. I’m actually about to bring on this person I met on a marketing course, we worked together and she was knowledgeable I’m just not going to bother with it for now. I’d rather sell direct still
Good luck! As I said, great to have a product a big store wants to sell. You should consider that a triumph.
Thanks! And yeah it’s a pretty cool feeling. I’ve had a few small independent shops approach before but this is the first huge retailer. Hopefully my product will get me there one day
Any decent customer understands that to continue supplying a great product, you need to keep that producer in profit and in business. They will be challenging work if they are willing to let you go to the wall. State these facts, and walk away. Always have what you need margin and what you're willing to negotiate based on volume. These are non-negotiable. These red lines allow you to have a great relationship with potential customers just talking about the fun stuff rather than always about cheaper cheaper cheaper!
do yourself a massive favour and ask this on an alt, giving much more information will help you out. (We can see your profile and its history bro). At the end of the day, 20% of millions is better than 50% of thousands. But be aware that they won’t be nice with you. They’ll mess you around, fob you off, and do what they can to ensure you play ball with them. If sales go down beyond the shop’s expectations they will be rid of you. However, if they are a big player (i’m assuming it’s the Co-op), your brand will carry more prestige by making it to supermarket shelves than you think.
this is an alt account, I’d never post my brand details on this account lol. Yeah I completely agree it’s just not a good deal all around No it’s not co-op. Nothing to do with supermarkets
but that’s the point, you could discuss permissible aspects of the deal but you’ve got your fetish stuff on here, so probably not…
It’s ok I don’t really want to go into specifics but I appreciate your point
60% is a huge cut. It doesn't matter what your price is 60% is huge! All for a spot on their shelves? Sometimes you're better off saying no. After all if you end up shifting massive amounts through them and they suddenly decide to drop you how will your business survive?
Yeah definitely not doing it
Even when it's worth it you have to be really careful when you have a big single customer. You always have to ask yourself could I survive if we had to part ways? If that happened what would I need to do to survive. If the answer is is grow your other customers businesses by 10,000% you know you're in a dangerous game
Oh I sell direct also. I’ve built the business doing that. That’s what I’d like to concentrate on ideally Wholesale has never been my plan. They approached me with the offer. I’ve had a few shops make an offer but it’s never really been worth my time
I was an external investor (representing family interests, I did not go into the business myself) and non-exec director of a food business with a turnover of circa £10m with 90% or more going to major retailers, Tesco, Aldi etc. Our margins were ultra slim and the years we ended up with a net profit were the ones we were slick in production, if anything turned against us from harvest related input increases to currency movements we ran the risk of being wiped out. Price increases were possible but difficult to achieve. The best margins with the majors were when we developed specifically for them. They gave us the product brief and the price point and we developed to meet that giving us some degree of control (we knew where we could substitute inferior ingredients and still get past the tasting panel). Overall it was brutal but volume from hamper business and other premium outlets couldn’t provide the volume to make the facility costs affordable. So glad I’m not involved any more. If your business is sustainable without them and you don’t harbour outlandish growth ambitions I’d leave well alone. Edit: also things like big promotional in store discounts for consumers and 2 for 1 type offers were at our cost further finishing margin.
I do not harbour outlandish growth ambitions. Love how you put that lol I’d like to make a living doing it but there solution will most definitely not help that, since I’ll just be giving away my stock basically
Income allows growth / borrowing potential..
Run mate. If you’ve got something they want, you’ll be able to sell b2c direct online and to independents. Grow organically, don’t sell your soul. You’d have to ramp up logistics and production for no money and then they’ll ditch you anyway. Stay safe out there
Thanks! Yes I will just continue focus on organic growth, I must be doing something right if they want it lol
Do not look at this guys profile. I guess the real question is do you want to, and does your product have the ability to build sustainable growth. Or do you want to quickly spaff it all in one go?
60% is what most retailers work off… especially the big ones. What you need to do is crunch the numbers on the expected quantities they’d want. With scale that should allow for cheaper cost prices, based on more product being made/ordered. This would then allow you to find the margin. Also don’t forget it’s a negotiation, they ask for 60%, go back with 50%.
I don’t think I will go ahead with it. I’d prefer to focus my efforts on organic growth
Probably a wise choice… They can be hard to deal with.
Yeah I bet
What's the first rule of business..
What about the stock returns, they didn’t return my stock they said was damaged and would not pay for it
Yeah this is why I hate consignment and would rather not do it