Developing a Line Sheet

You're ready to enter the wholesale market. You've categorized your products and developed an inventory system. Now it's time to develop your line sheet.

What's that? A line sheet is a one or two page document which conveys information about your company, your products, as well as your payment, delivery and return policies.

Following are the key items you'll need to include:

1. Your contact information - As with your stationery and all your marketing materials, include your contact information, especially email address and telephone number.  This is not the place for your Facebook or Twitter addresses! They goal is to make it simple for the buyer to contact you, not for them to be impressed with each and every one of your social media efforts. If you are working with a sales representative, consider replacing your contact information with theirs.  Your rep will thank you for this simple gesture!
2. Basic information on your products - Wholesale pricing, colors, and sizes available are key elements here. If you have developed your inventory and have a unique identifier for each item, include it here.
3. Minimum quantities - What is your minimum order? Make it realistic yet encourage your buyer. Remember, the goal in wholesale selling is to sell a larger quantity of items - in doing so, you can lower your supply costs and increase economies of scale and time! For example, I have a minimum order of $100, which is fairly easy to achieve.  Using easy numbers, selling a case (12) of candles for $10 each is $120.  the quantity makes sense and it achieves the minimum order I require.
4. General information about your product - What are your materials? Do you have a unique assembly method? Are your supplies eco-friendly? This is the spot to turn your features into benefits.
5. Payment terms - Here's an area you may need to beef up your accounting terminology. Are your terms net 30 (payment due 30 days after receipt of product), upon delivery, or up front? I offer a combination - I just don't have time to do a credit analysis, so first time orders require a credit card payment, and following orders are net 30. 
6. Turn around time - How long can the buyer expect between date of order and date of receipt of product? If your turn around time is four weeks or more, you really need to be thinking in advance regarding the seasonality of your product. If you're able to have product inventory on hand, consider a two week or less turn around time.
7. Shipment - Answer questions such as who pays? Which carrier do you use? Think creatively as to whether you can offer a discount on shipping for larger orders.
8. Damages and returns - This was the hardest part for me. If you're going to play with the big guys, you need to be prepared to offer refunds and returns like the big guys. Know what your competition is doing, even if you're reaching for the stars. But make sure your return or refund is something you're willing or able to lose. You may be able to write in a restocking fee here, but always be prepared to accommodate a 100% refund!

As I've mentioned before, I use Stitchlabs for my inventory management system. One of the reasons I chose it was because it could take the information I developed on each product family, the inventory and stock photos and create a .pdf file for me. While I'm not endorsing nor encouraging use of this product, I do recommend you research whether the inventory system you're considering can do this for you as well.

So those are your key elements. If you foresee selling wholesale in your future, I highly recommend you begin working on these elements now! In future posts, we'll discuss how to take this technical information and turn it into a marketing piece.

As always, I welcome your feedback and questions.  Until then, happy sales!

Dorene

Inventory Management, Part 2

As your business continues to grow, you'll need to develop a system for inventory management. In a previous post, we discussed the why an inventory management system is necessary; today we'll discuss how to develop your system.

Consider the variety of your products. What do they have in common? If you develop a variety of products, try to align them similar to how you would shop a department store: bedding, kitchen, clothing, decor. If your products are in a similar line, such as jewelry, align them around similar functions: necklaces, earrings, bracelets. And don't be afraid to be specific.

When I first started my inventory management system, I grouped my products similar to the sections in my Etsy shop: container candles, tea lights, votives, etc. For the most part this worked.....but then I needed a way to differentiate between three container candles I carry.  While "container candles" creates a category of similar enough products, I have a different pricing structure for my 7 oz and 12 oz candles. So in addition to the tea lights and votives, I now have separate product categories for my 7 oz. container candles, as well as my 12 oz. status jar and 12 oz interlude jar candles.

You'll also want to be able to differentiate between sub-categories. At D'Lites by Dorene, I use a sub-category of fragrance. If your product is jewelry, you may choose a sub-category of metal or stone; if your product is paper products, you may choose a category of notecards and a sub-category of stamped or stenciled.

Why are sub-categories important? Because at some point, you'll probably want to cross reference your products to understand your best sellers. For example, I can easily identify by my Etsy sales that tea lights are my best selling product. But what if I want a better understanding of my best selling fragrance? This is where having a sub-category and the ability to sort comes in handy. Think of how you could get a better understanding of which stone sells best or whether your stenciled or stamped products are most preferred.

As I've mentioned before, I utilize the online system Stitchlabs to manage my inventory. What's nice about this system is it has already developed dashboard functionality to show my sales trends.

This can also be easily accomplished using Excel or another spreadsheet software. Here's a snapshot of the same information:

And, using a little Excel Pivot Table Magic, here are my top ten fragrances for the same time period:

But what if most items are similar but a few are unique? I have a category for my clearance items, many of which are five or less. The pricing structure is different, but it's still a way for me to collect "similar" products yet use the same formula to be able to analyze my results.

As you grow, you'll find yourself creating a unique identifier for each item - a shorthand method for you and your customers to place and to analyze sales.

What questions do you have? My intent is to "build" this information in segments.  Our next chapter will be on how to use our inventory system to develop sales sheets to distribute to retail and wholesale vendors.

Until then, Happy sales!

Dorene

Selling Wholesale - Information Management

As my Etsy sales continued to grow and as I began to participate in craft shows, I knew I needed a better method to track my inventory. Particularly before and after craft shows, it seems I was always writing my inventory on a note pad then transferring the information to an Excel spreadsheet, let alone it seemed I had no way to track my product in consignment. As before my wholesale accounts began to place orders, I realized my inventory conundrum was going to be even bigger as my sales grew.

I began looking for an inventory management system, not quite knowing what I was looking for. In my "day" job, I manage a database for a non-profit organization, so I had some idea of the interaction and capability I needed. At that time, there was only one inventory management system that was fully integrated with Etsy, and it just so happened to be offering free access to its basic usage.

The system I chose is Stitchlabs. Please know, this post is not a paid endorsement, and since I began using Stitchlabs, other inventory management systems are now available to sync with Etsy. The thoughts I share with you here are based upon my experience, and items you need to consider before committing yourself to any system.

• Contacts - Before adding my contacts to a database, I was managing my contacts through rogue spreadsheets: one for wholesale account, one for local customers, one for Etsy customers which I downloaded.
• Inventory Management - Stitchlabs has the capability to track how many units are complete, how many are in production, and how many have been sold. As orders began to increase in quantity, I had no way to manage how many units of 12 oz candles were needed or how many different products of one fragrance were needed.
• Order tracking - Etsy is good for simple counting of number of sales. But I had nothing to integrate my local customers let alone my wholesale sales into one information system.
• Expenses - Sigh. My business is still operating on a cash accounting basis (sometimes simple cash flow basis) and aside from basic checkbook accounting, I had no method to track profit and loss or cost of goods sold (an important factor which is extremely important as your business grows).
• Reporting - I had none. No way to track my best customer, no way to track my best sales. I knew from my general observation that tea lights are my best selling product, but it caught me by complete surprise that Lavender was my best selling fragrance.
• Integration - Direct import of Etsy sales is a huge benefit! Additionally, I want a system to which my sales reps can log in to place an order, eliminating the need for them to scan an order, especially one that may include credit card payment information (a huge compliance issue in my book!).

My intent is to explore each topic on my weekly Wednesday blog posts. If you have a question or problem that you are trying to solve in your backend office that you feel can be answered in this series, please write it in your comments. Your questions really make it so much easier to look at each topic through another person's lens.

Until next week,

Happy sales!

Dorene

Selling Wholesale: Thinking about Costing and Pricing

One of the first challenges with any business is determining your pricing structure, and many businesses go under because they are not charging enough. If your marketing strategy is to be a low cost leader (think Walmart) this may work for you as the volume of sales will drive your revenue. But when starting a business, we're often think about any sales, not yet volume of sales.

The first step in determining pricing is to be knowledgeable of your costs. Be sure you have a clear knowledge of cost per unit when calculating your product costs.

For example, assume I make a necklace comprised of three simple pieces.  Piece A is available in units of 10 for $1. Piece B is available in units of 12 for $1. Piece C is available in single units for $1.  Your units costs are:

Piece A = $1/10 = $0.10
Piece B = $1/12 = $0.08
Piece C = $1/1 = $1.00

Now, assume the necklace needs 7 units of Piece A, 5 units of Piece B, and 3 units of Piece C.  Your products costs are:

Piece A = $0.10 x 7 = $0.70
Piece B = $0.08 x 5 = $0.40
Piece C = $1.00 x 3 = $3.00

Total cost = $4.10

But don't forget about labor and overhead costs.  Yes! You need to pay yourself! This example is going to assume $10 per hour labor, although I know your time is valued at much more than this!  Assume it takes 15 minutes to make one necklace. Total labor cost for one necklace is:

Labor = $10.00/4 = $2.50
Add product costs = $4.10
Total cost so far = $6.60

Then the dreaded overhead costs: rent, marketing, insurance, utilities, machinery.  For easy math, let's assume these costs equal $10.00 per day.  Total overhead cost to make one necklace per day is:

Overhead = $10.00
Add labor costs = $2.50
Add product costs = $4.10
Total cost so far = $16.60

Your wholesale price should be at least twice your costs.  Therefore:

Wholesale price = $16.60 x 2 = $33.20

Whoa!!!!! That's what I'm selling my necklace for as retail!!!! It is so easy to fall into this trap, because we know what a similar product may sell for in similar online shops, and even in our local department store. The online competitor may sell for $25.00 and the local department store for $15.00.  But, you say, mine is hand crafted with better quality items. Cost is not always a deciding factor with the customer, sometimes quality is.  But you still need to be competitive.  That's where selling wholesale can help you break even and become profitable.

Let's use the same example. You know you can make a single necklace in 15 minutes, but because of working in larger quantities, you can make 6 necklaces in one hour.  Now, your costs looks like this:

Product costs = $4.10 x 6 = $24.60
Labor costs = $10.00
Overhead costs = $10.00

Total costs = $44.60
Per unit cost = $44.60/6 = $7.43
Wholesale price = $7.43 x 2 = $14.86

Now you're competitive! The necklace can be sold for retail price of wholesale x 2 = $29.72, which I would round up to $30.00.

This is truly a contrived example, but it demonstrates what I like to call Economies of Time. We're familiar with Economies of Scale, in which buying larger quantities drives down the cost per unit.  With Economies of Time, doing repetitive tasks successively can help you to build speed, allowing your to accomplish more per units of time.

But I also use this example intentionally, as it's the model on which I base my pricing.  I sell my candles wholesale for $10 each, and cases of 12 for $120.  Pretty simple math.  But it takes just as long to make 12 candles as it does to make 1.  (Think preparing a batch of cookies then putting only one into the oven). I use Economies of Time to provide a 10% savings to the buyer if each case is one fragrance only.  I'm willing to pass my savings in time on to the buyer and sell one fragrance case for only $108.00.

Now, as someone just beginning to gain wholesale orders, I realize it will take some time for a buyer to want to buy an entire case of one fragrance. But I believe they will see this as an incentive as as they become more comfortable and intrigued with my product!

What also goes unsaid in this example, is the extra costs of supply inventory for unmade product. Using my batch of cookies example, when I only bake one cookie, I have not only excess flour, sugar, and butter (supply inventory) but excess unbaked cookie dough (product inventory). This carries a cost as well as the excess flour, sugar and butter are opened and will only be used when I make another batch (sunk costs), and I can't sell the dough until I bake again (inventory).

This week I encourage you to think about you can maximize your time by producing in larger quantities. Even in the example above, each necklace will be slightly different due to the natural variance in hand crafted items. But if our goal is to make money from our craft, we need to analyze the costs associated with our business.

I welcome your thoughts, feedback, and questions. Until then, happy sales!

Dorene

Selling Wholesale: Being Prepared

I began thinking about selling wholesale in early last summer. How I made that decision was based upon my desire, not only to get more product into stores, but to increase my revenue. Yet, for as much as I write about being prepared and making sound business decisions, once I entered the wholesale market, I found I was not as prepared for selling wholesale as I thought I was.

Here's how it started: I knew I needed more revenue. I know it's just as easy and no less time consuming to pour five candles as it is to pour one. So my logic at the time told me that if I could sell more candles, I could make more money! And working full time, I did not have the time to market my product, so why not find someone to do that for me?

But here are some issues I was struggling with:

• Branding - I wasn't happy with my branding. Like most entrepreneurs, I did not have a lot of revenue to invest in graphic design. But in my for me, much of my product line needs to be sold with graphic design. Until you can smell through your computer, I needed something else to help me sell my product.
• Inventory or financial management - I didn't have an inventory or financial management system. Yes, I promote the fact that I create my product at the time of order. And yes, I was keeping track of my revenue and expenses. But I did have a small inventory that I kept for craft shows and farmer's markets.
• Promotional materials - If you followed my newsletter series, you know how much I enjoy marketing. I didn't think developing promotional materials would be too big of a task.
• Policies - I had a vague thought in my head of $100 minimum orders and payment upon order, but that was it. I hadn't thought about policies for samples, shipping, order processing, returns....the list goes on and on.

I had approached some local stores before about selling my products. I had even sent sample tea lights and basic information. But I wasn't getting anywhere. When I found a site to place a free listing for representation, I decided, why not? 

So, imagine my surprise when two days later, a representative did in fact contact me about repping my line!

My wisdom to you today is to be prepared.  If you're struggling with an aspect or two of your business as it exists now, the problem will only magnify when your sales become larger. Take time out of your busy schedule now to identify a problem. Maybe you know you have an issue but can't identify exactly its cause. Or identify where you have an opportunity to do better. Then take time to think through how to resolve it. Reach out to other business owners if you need to. Ask for help from friends. But don't think that by waiting "until you get that large order" means you should avoid dealing with it now.

With Thanksgiving and the holiday shopping weekend ahead of us, I know many of you won't have as much time for my weekly business lessons. The next few weeks, we'll address each of the issues I listed and how they were resolved. If you have struggles with any of these problems or other issues and concerns, please let me know.  Let's work on them together over the next few weeks and start 2013 with a bang!