Small Business Summit Center

[Our first Fix My Problem advice for entrepreneurs is about the perils of starting to selling direct — when your sales are coming through distributors. If you've got a revenue question, ask it anonymously here.]

Question from Laurie:

Several months ago I purchased an import/wholesale company. Because of some personal problems experienced by the former owner, sales had fallen off by about 50% in the last year, but she also was in the process of adding a couple of new products that showed a lot of promise. Now we are focused on rebuilding sales to former levels, and hope to be breaking even in the near future.

At present, our sales are exclusively to US retailers and several overseas distributors, but we receive daily inquiries from potential retail customers who either don’t live near a retailer that carries our products, or who have visited a retailer and found that the products they want (often the new ones that are just beginning to ship) are not stocked at their local store.

We are in the process of redesigning our website, and are seriously considering online retail sales to increase revenues and satisfy the demand we keep hearing is out there. I know that selling directly to end-users will anger at least some of our wholesale accounts (not to mention our freelance sales reps, who represent us along with several larger companies). We would plan to make retail sales at MSRP, and not undercut retailers on price. What should we consider as we make this decision, or is it really as much of a no-brainer as it seems at first glance?

Response from Kristin Zhivago, NYTSBSC Expert on Revenue Generation:

Hi, Laurie. You’ve posed an excellent question. This is something that all manufacturers wrestle with. And I’m sorry to say that, as you suspect, this is not the “no-brainer” that it appears to be. It requires more careful planning than just about any other aspect of selling.

The first and most important piece of advice I must give you is this: Think BOUNDARIES. Clearly defined boundaries. Here’s what I mean.

The relationship between manufacturer and distributor is all about territory. I don’t necessarily mean geographical territory, although that obviously can come into play, but virtual, commercial territory. In the classic manufacturer-distributor-dealer relationship (with freelance reps floating around in the mix), the manufacturer makes it, the distributors supplies the dealers, and the dealers sell it.

You know this; you’re already following the classic model. And, as everyone knows, the Internet was the meteor in the commerce lake, and now we have a whole new situation that requires careful new boundary and role definitions.

Amazon.com is a perfect example of new, clearly defined roles and boundaries. Amazon acts as a retailer, distributor, clearing house for individuals, portal for retailers, and as a distributor/retailer for publishers or manufacturers. In each case, Amazon has made the rules clear and simple, which is why they’re pulling it off. Everyone knows what the deal is, and how everyone fits into the model.

If you have any kind of relationship with Amazon, it’s abundantly clear what you can and cannot do, the role that Amazon will play, and how you should do what you are expected to do. They don’t resort to reams of legal copy to define the relationship, but instead use clearly communicated, step-by-step procedures. If you want to become an Amazon partner, you are given clear instructions and all the tools you need to do your part.

Getting back to your situation, outside of any contractual agreements you have already signed, you are free to do whatever you want…but you must do several things to make things work. You may have done some of this already, but just in case, here’s the whole picture.

1) The first thing you need to do is create a “map” of your situation. A spreadsheet should work. I would list all of the products you sell, who currently sells them, how they sell them (online and off), and the price they charge. I would also rank the products for their online sales potential and your desire to sell them that way. Certain types of products will sell better online than others. Some may even sell best exclusively via your own website. Build these considerations into your spreadsheet.

2) Consider all the tradeoffs for each product, including the appropriate selling model for each one. How easy is it to stock these products, and ship them? What more will you have to do to your website to sell them successfully? (See more on this below). How many/few of them are already being sold successfully through distributors/dealers? Could you do more to increase those sales - making them more successful - eliminating the desire to sell the products yourself? In other words, are you considering selling direct, before doing the best job you can to support your retailers (I’m thinking about your comment about products “not being stocked at the local store”)? If you start selling certain products online, will you alienate valuable distributors/dealers who are contributing significantly to your income?

3) Consider ways to draw new boundaries that “change the game.” For example, I decided to sell my first book through Amazon and my own site. I personally sign the copies that I sell myself, giving people a reason to choose to buy directly from me. My goal in selling some books direct has been to establish personal communication with my readers, which has been very useful. We have just finished interviewing a number of readers who bought the book direct. Their input is helping me decide on the content for my second book. If your dealers and distributors understand that you are selling online for research purposes, so you can improve your products and help them sell more effectively, they will more readily approve of your online efforts.

4) Consider ways to do a better job of supporting the distributors, reps, and dealers you already have. I visited your website and believe that you could write a lot more educational copy about the products you sell, and the causes you contribute to. Anything you write on your own site can be helpful to others selling your products. Successful selling is largely a matter of answering questions that buyers have. I’m hoping your new website will go much further in this direction.

5) If you decide to sell specific products online, while still selling them through your distribution network, make it very clear to your online buyer that these products can also be purchased via your distributors and dealers. Give the customer the option to click over to that list of sellers during their online buying process. This way, your sellers will feel less abused by your decision to sell online. You may think this is counter-intuitive; why give buyers a way to leave your site? I would answer that many customers will become more likely to buy, because they will be impressed by the fact that so many other places carry your products.

If I were you, as I was creating my new website I would interview my reps, distributors, and dealers and ask them, “What could I do that would help you make more sales?” This is the real secret to selling more, online or off. I would ask them what questions people ask, which products are most popular and why, what they’ve done to market your products so far, and how it’s working. I would build their suggestions and observations into my new website. I would then send an announcement to my distribution network, announcing that “we have heard and heeded” their suggestions. I would point out the changes that we had made as a result, including any links to their sites.

In your redesigned website, I hope that you a) include much more information about the products that you sell - more copy, more pictures, more of “the story behind the product”; b) make it very, very clear which products are sold online, which products are sold only through dealers, and which products are sold both ways; and c) that you spell out that all prices on your website are “manufacturer’s suggested retail prices,” and that certain dealers/reps may offer discounts.

I hope this has helped you. As you proceed, you’ll be encountering new challenges. Feel free to write again, so that I can help you - and other readers wrestling with these issues. And, of course, I’d love to hear about your successes.

[Questions asked in the Fix My Problem forum are edited for anonymity.]