Home – New Forums Logistics Moving from retailer to distributor… What do I need to know?

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  • #977661
    Rico
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    I sell outdoor sport gear and I’ve been importing a couple of brands exclusively in Australia for quite some time with good success. I’d like to move to the next level becoming a wholesaler/distributor.
    The problem is that I am not sure how to setup this kind of operation.

    How much margin should I offer to retail shops buying from me, so to make it attractive for them?
    What type of payment options should I offer? Should I bill them each time they order or monthly? How much notice should I give before changing a price list? And what about taxes and laws, anything to look for?

    As you can see I need all the suggestions you can give me :D

    http://www.AdventureFriends.com.au

    #1099760
    King
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    Well, can I just say that as you are in the industry, you will no doubt have a good idea of how ordering and payments work – it would be the same as you do with your suppliers of other products (assuming you sell more than just the lines you import??)

    Based on that the same would work for the margins expected. These could range from 20% to 120% depending on the product, if delivered FIS, terms etc.

    #1099820
    King
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    Well, can I just say that as you are in the industry, you will no doubt have a good idea of how ordering and payments work – it would be the same as you do with your suppliers of other products (assuming you sell more than just the lines you import??)

    Based on that the same would work for the margins expected. These could range from 20% to 120% depending on the product, if delivered FIS, terms etc.

    #1099761
    marketingweb
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    • Total posts: 625
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    When considering setting up as a distributor, may people underestimate the markup that retailers require to be viable, and expect that a 10% to 20% discount off the retail price will have stores fighting each other to stock your product – in reality it’s unfortunately not like this.

    Margins vary from industry to industry, but will generally be a “Gross profit margin” of between 20% and 60%, which is the equivalent to the amount of discount you have to give them from retail price. In my experience few products will be under about 35% GP. If you have worked in the same industry before on the retail side you will have an idea of your industry based on the markup you charge when onselling product from others. 50% GP is equal to 100% markup, which would mean that retailers are selling it for double what they pay. 33% margin is 50% markup etc – they scale at different rates.

    Bear in mind that the percentages I am referring to are gross profit (GP) percentages which equate to how much of the final sell price is profit for the retailer (with the rest being product cost plus freight etc). This is different calculation from a markup that King was referring to, which is “how much do w charge on top of costs” – one is “% on top that’s gross profit” the other is “% of final sale price that’s gross profit”.

    Make sure you understand this when discussing percentages as getting them around the wrong way can get you very unstuck! A simple calculator to convert between the two is here: GP Calculator 1 and another here: GP Calculator 2 and another here with some useful definitions: GP Calculator 3

    Hope this helps,
    Matt

    #1099821
    marketingweb
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    • Total posts: 625
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    When considering setting up as a distributor, may people underestimate the markup that retailers require to be viable, and expect that a 10% to 20% discount off the retail price will have stores fighting each other to stock your product – in reality it’s unfortunately not like this.

    Margins vary from industry to industry, but will generally be a “Gross profit margin” of between 20% and 60%, which is the equivalent to the amount of discount you have to give them from retail price. In my experience few products will be under about 35% GP. If you have worked in the same industry before on the retail side you will have an idea of your industry based on the markup you charge when onselling product from others. 50% GP is equal to 100% markup, which would mean that retailers are selling it for double what they pay. 33% margin is 50% markup etc – they scale at different rates.

    Bear in mind that the percentages I am referring to are gross profit (GP) percentages which equate to how much of the final sell price is profit for the retailer (with the rest being product cost plus freight etc). This is different calculation from a markup that King was referring to, which is “how much do w charge on top of costs” – one is “% on top that’s gross profit” the other is “% of final sale price that’s gross profit”.

    Make sure you understand this when discussing percentages as getting them around the wrong way can get you very unstuck! A simple calculator to convert between the two is here: GP Calculator 1 and another here: GP Calculator 2 and another here with some useful definitions: GP Calculator 3

    Hope this helps,
    Matt

    #1099763
    marketingweb
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    To answer a couple of your other questions ….

    Re payments, it’s probably best for the retailer and standard practice if you send an invoice with each order, with 30 day terms. Then send a monthly statement if they have an outstanding balance. It’s also normal to make the first order or similar as cash up front. If you can’t afford to do this, then you may be able to get cash up front for every order, but you would need to have a pretty desirable product they can’t source elsewhere.

    Notice before changing a pricelist, generally 30 days minimum is standard, allowing time for sending it out, so say 35 days. 60 days is ideal for a retailer. Changes with less notice OR sending out new pricelists more than twice a year can put you in the “difficult supplier” category.

    Again, hope this helps,
    Matt

    #1099822
    marketingweb
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    • Total posts: 625
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    To answer a couple of your other questions ….

    Re payments, it’s probably best for the retailer and standard practice if you send an invoice with each order, with 30 day terms. Then send a monthly statement if they have an outstanding balance. It’s also normal to make the first order or similar as cash up front. If you can’t afford to do this, then you may be able to get cash up front for every order, but you would need to have a pretty desirable product they can’t source elsewhere.

    Notice before changing a pricelist, generally 30 days minimum is standard, allowing time for sending it out, so say 35 days. 60 days is ideal for a retailer. Changes with less notice OR sending out new pricelists more than twice a year can put you in the “difficult supplier” category.

    Again, hope this helps,
    Matt

    #1099766
    Safe Skies
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    Hi Rico

    I sell into similar places to who you would target and agree with whats been said, 50/55% minimum and 30 days, they are also mostly late so you will need to factor this in, your products will need to have have something that they do not have in the current stock or a better price.

    Drop me a line if you want to chat further.

    G

    #1099823
    Safe Skies
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    • Total posts: 202
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    Hi Rico

    I sell into similar places to who you would target and agree with whats been said, 50/55% minimum and 30 days, they are also mostly late so you will need to factor this in, your products will need to have have something that they do not have in the current stock or a better price.

    Drop me a line if you want to chat further.

    G

    #1099768
    Brett N/Nerds Computer
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    • Total posts: 76
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    Hi Rico,

    It is all about the product you are selling and the distribution channels you create.

    Typically distributors make approximately 30% but this varies hugely from industry to industry and even within an industry from product to product.

    I would suggest that the most important thing is have solid relationships with you retailers. Now is not an easy time for retail. Being sensitive to that fact is a key.

    Your past experience as a retailer should hold you in good stead. Treat every customer as important because you never know who will be big in the future. Try not play favourites as today’s market leaders can become tomorrow’s liquidated businesses.

    Speaking of liquidation a key to distribution is to closely control your cash flow. This means controlling customer credit and not buying too much inventory.

    Wishing you the best in your new move!

    Brett

    #1099824
    Brett N/Nerds Computer
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    • Total posts: 76
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    Hi Rico,

    It is all about the product you are selling and the distribution channels you create.

    Typically distributors make approximately 30% but this varies hugely from industry to industry and even within an industry from product to product.

    I would suggest that the most important thing is have solid relationships with you retailers. Now is not an easy time for retail. Being sensitive to that fact is a key.

    Your past experience as a retailer should hold you in good stead. Treat every customer as important because you never know who will be big in the future. Try not play favourites as today’s market leaders can become tomorrow’s liquidated businesses.

    Speaking of liquidation a key to distribution is to closely control your cash flow. This means controlling customer credit and not buying too much inventory.

    Wishing you the best in your new move!

    Brett

    #1242609
    markups
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    The first step to starting a distributorship is convincing a distributor that you have a product worth selling. Understanding a distributor’s business needs and values can help you develop a compelling pitch for this purpose. You can learn about a distributor’s target market, shipping, packaging, geographic delivery area and other factors that can determine the success of your product within the distributor’s business model.

    In addition to knowing how to sell to a distributor, it’s also a wise choice to learn about a distributor’s reputation. You can ask for references from other retailers to ensure the distributor is a reliable and profitable choice for your product type and target market.
    Visit Markup Calculator

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