Tuesday, October 19, 2010

Determining your wholesale terms

First, let me apologize for being a bad blogger. I have the best of intentions, I really do - but so many other things really have to come first and this blog always seems to slide down the bottom of my to-do list. I'd promise to be better about it, but I know it's unlikely I'll ever be a weekly blogger. There are always going to be busy times, or weeks I can't think of anything to write about, or when the topics I do want to write about seem like such a big project that I keep putting them off until I have more time. (And when exactly is that, anyway?)

So I'll just trust that you have lots of great blogs you're following and hope you appreciate that there's one that doesn't overload you with posts.

And now, on to the subject of wholesale terms:

Every artist who starts in wholesale has to start by establishing their terms, and most are confused and overwhelmed at the thought of it. So if you don't know what 'terms' means, know you're not alone and relax. I'm going to give you a simple explanation that should make this task a lot easier.

When you start approaching buyers, whether at their store or at a show, one of the first questions they are likely to ask is "What is your Minimum?"

Minimum refers to the minimum amount you require for a wholesale order. Most wholesalers have a minimum opening order – which is the first order they place with you, and a different minimum reorder. Deciding what your minimum will be depends on a few criteria. 

1. Every order must be profitable for you.
2. Your minimum opening order should create a nice display of your work but at the same time not require a huge investment for the buyer who is taking a risk on your line for the first time.
3. Your minimum reorder should make it easy for the buyer to restock and replenish their display long before they run out.

Your opening order is always larger, because you want to make sure the store carries and displays a strong mix of your work, enough to show it off and enough variety that there are choices for everyone. You also want the store to make an investment in your work. It motivates them to display and sell it well. Having a few items scattered throughout a store does not show your work well and generally doesn’t sell it as well, so small opening orders don’t serve you or the buyer.

Your reorder minimum should be smaller. My opening minimum is $200, my reorder minimum is $100. I want my buyers to be able to keep my display full and fresh without a big investment and with a smaller minimum they can reorder more often instead of waiting until they run out to reorder. In other words, if they have sold half of their first order, buying another $200 worth at that point might be too much for them. But they can easily refresh and fill out the display for only $100. And when I introduce new items they can easily buy a sampling of those to add to the line.

So, while it’s tempting to require a large minimums, remember that if you do it will not only turn away new buyers who don't want to spend too much on a new line, but it will also take longer for the store to run low which can make it look like your work sells slowly. The faster they see it disappear, the better!

Now, exactly how do you structure your minimum? Really, this is up to you.
You can require a minimum dollar amount or a minimum quantity of items. You can also require a buyer purchase a quantity of each color, each style, each item or each design.

For example: I can require that when ordering magnets a buyer must order 2 (or 6) of each design and order a total of 4 dozen. I allow my buyers to order anything as long as it adds up to my total minimum, but not every artist does. You can require that they order 48 pieces, 10 sets, or for example, a glass earring can be sold in sets of six, with the sets available in a variety of colors.

Some stores might need special consideration. I sell to several stores that only sell pet items or ladybug or horse themed items. For those stores I allow a smaller minimum since they have a narrow focus and I only have a few items that will work for them. 
When you set your minimum, figure out what works for you, and then always put yourself in the shoes of your buyer. It’s your job to make sure your policies work for them too. As I have said here before, your relationship with your buyer is a partnership. If they do well, you do well and vice versa. 

As always, if you have any questions about wholesale or any other topic please leave a comment or email me at pj@businessofcrafts.com.


Colleen MacDonald said...

Thank-You, Pam, for always having such valuable posts. It's not a problem that you don't post weekly because your information is so good that it's worth waiting for!

Pam Corwin, Business of Crafts said...

Aw, thanks Colleen!

Melissa said...

I make pottery and the advise a friend gave me has really worked for me to determine my minimum. I marked out a 3 x 3 space and arranged a nice display of pottery within that space. And then added up the total dollar value. My minimum is $400. My buyers get a good mix of pottery, large and small pieces, and my pottery gets enough space in a store to have a visible presence.

Pam Corwin, Business of Crafts said...

That is really a brilliant idea.
It wouldn't work for every medium or every artist, depending on their line and price range - but for many it's perfect.
I have stores that just carry my bookmarks or only order my magnets and that would be an insane amount of those but a reasonable amount if it was all wall clocks. So I can't use it, but I'm going to share this in my classes. I think many people will find it very useful. Thanks so much for your post!

john said...

if you made a small plastic product what would you say to buyers who want you to send a sample of your work? Can you insist a photo suffice? I'm worried they'll send it to china, have it copied and sold more cheaply.

Pam Corwin, Business of Crafts said...

John, I can't say for sure without seeing/knowing what you sell, and how you sell it. I need more information to know for sure what I'd advise. But my first reaction is why would they need a sample?

If you have good professional images and a complete & clear description, there should be no need. In that case there may be reason to be suspicious. But if you get this request a lot, it might be an indication that you you need to do more to make sure perspective buyers can see your product well and have all the info they need to judge whether they want to order.

I generally don't send samples. But in the case of my magnetic bookmarks they are so inexpensive and easy to pop into an envelope that I can easily do it. And it does get me orders. If it's a tiny inexpensive item, it's not unreasonable to ask to see it in order to check out quality, etc. before ordering. If it's not, I think it's pretty presumptuous to ask. (would they really call a large supplier and expect them to send a product for free just so they can see it?)

On the other hand, if they want to copy what you do they can find a way - if they have the money to take it China they can afford to just order your minimum order. And I think it's more likely they just want to know what they are getting.

So bottom line - you have the right to just say no. You can tell them you don't offer free samples but you'd be glad to answer questions and send information and images.

Shaun Isaac said...

Great post!

Also, what are the various wholesales terms or jargons we should know about in case we are asked them?
Such as MOQ (minimum order quantity) which you mentioned!

Pam Corwin, Business of Crafts said...
This comment has been removed by the author.
Pam Corwin, Business of Crafts said...

That's a good question, and I have a feeling I posted about that a long time ago. If not, I really should...Here's a basic list for you. If you have any questions about it, let me know.

Wholesale terms and definitions

Terms – Your requirements for payment and ordering. Do you require a credit card for the first order? Do you offer Net 30? Do you do C.O.D? Etc.

Minimum – The minimum number of items or dollar amount you require to make a wholesale order worthwhile.

Net 30 – You ship the order and bill the customer and allow them 30 days to pay. This is generally how it's done after you establish a regular working relationship.

COD – Cash On Delivery.

Proforma – The customer is billed when the order is close to shipping. They send a check and when the check clears the order is shipped.

Prepaid – Paid when it is shipped by check or credit card. (No credit extended)

Christmas/Holiday dating – You ship before the holidays and allow 60-90 days for the bill to be paid. This allows the store to order more stock than they might otherwise, and pay for it after it is sold.

Credit sheet- A list of credit references supplied by the buyer. Never feel shy to ask for this. They are used to supplying it.

Late fees – A percentage or flat fee charged for past due invoices. (not done very often anymore)

Lead time/ turnaround time – The amount of time the buyer should expect to wait before you can ship their order.

Write – Place an order. Buyers at a show might say"Ok, let's write", or you might after a conversation about the product ask if they are ready to write.

Offset – When you sell your own display fixtures, this refers to free extra pieces or a discount on the product, to offset the cost of the display for that item.

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