You have a great product and you are ready to get it on the market and in the hands of consumers — but where do you start? Many manufacturers turn to distributors to help them connect with retailers, market and ship their products. Use this guide to better understand the manufacturer/distributor relationship, set the right price for your product and sell it to distributors.
Why use a distributor
Manufacturers can either sell their products directly to retailers and consumers or partner with a distributor. Direct sales come with a long list of challenges. You have to be able to store effectively, sell, ship and market your products. When you work with a distributor, they will purchase your products, sell them to their established network of retailers and take care of all the marketing and distribution details. As a result, you can spend more time designing new products and building your business.
Advantages of working with a distributor
- Distributors have a network of retail outlets so they can easily sell your products at wholesale prices and get them on the shelves. Essentially, you have an entire sales force working for you, but they are not on your payroll.
- Distributors take care of all the customer service issues including handling accounting, customer complaints and broken products.
- Distributors handle shipping. They will have the resources to deliver products to locations across the country and even the world. This means that you do not have to worry about navigating different regulations and compliance challenges.
How to sell a product to a distributor
The first step in selling your product to a distributor is to understand their needs. Essentially, they are looking for products that are easy to store and ship, are scalable and will earn them a decent profit. They also prefer working with manufacturers who sell more than one product. So, as you put together your sales pitch, keep these factors in mind and address them in negotiations.
Pricing is key
Correctly pricing your products is also key to securing a distributor. You need to find the right balance so that both you and the distributor are making a profit without raising the price to a point where consumers cannot or will not buy the product. There are four basic strategies that you can use to shape your approach to pricing:
- Economy: provide lower quality products at affordable prices so that consumers have easy access to them.
- Saturate: create high-quality products and sell them at low prices in order to saturate the market. You may be able to raise the price later, but this can be risky.
- Premium: sell high-quality products at high prices. This strategy only works if you know your target audience is willing to pay.
- Skimming: charge a higher price for a relatively low quality product. Keep in mind that this is not a long-term, sustainable strategy, but may work to make some fast cash.
Ultimately, you want to begin by gathering information about pricing in your industry. You do not want to copy competitor pricing, but doing some research will help you set a base price. From there, you can adjust based on which of the four pricing strategies you will be using. Also, do not be afraid to do some experimenting with pricing. This will allow you to find the right balance and adjust as markets demand so that you can enjoy long-term profits.
Other pricing considerations
Your negotiations with distributors will mainly focus on pricing. Unfortunately, there are no hard and fast rules to help guide you through this process. The percentage distributors will charge tends to vary by industry but according to the Beverage Trade Network, margins for liquor distributors are typically 40% or above.
For many manufacturers, the advantages of working with a distributor make it well worth the money. The key is to understand the role and needs of the distributor and carefully price your products in order to support your business and secure a reputable distributor who will sell your products.
How do distributors work?
Distributors buy products from manufacturers and sell them to their network of retailers.
How do I sell to a distributor?
Ensure that you understand their needs so that you can make your product as attractive as possible. Also, set a fair price and make sure that they are earning a profit percentage that makes it worth their efforts.
How do you set the price for your product?
Research your industry, decide on a selling strategy and set a base price that covers all associated costs. Take into account how much profit you want to make and what percentage will go to the manufacturer.
How do you price a product for a distributor?
It depends on your selling strategy, but you want to set a price that allows both you and the distributor to make a profit without raising the price to a point that is above what consumers are willing to pay.
What percentage do distributors take?
This depends on the industry. Faster moving products come with lower percentages, so keep this in mind as you choose products and pricing. According to the Beverage Trade Network, margins for liquor distributors are typically 40% or above