Fact No. 3: The margins are typically lower. For these retailers to charge such low prices, the product manufacturer typically makes up the difference. For example, you may be able to sell your product for $10 retail at a smaller specialty store that has paid you $5 wholesale. A mass retailer, however, must compete on price, so they’ll want to charge less—say, $7—paying you more like $3.50. If it costs you $3 per unit to produce your item, you’ve just cut your gross profit margin from $2 to $0.50. You should be able to recapture some margin by driving your own production costs down with the increased volume. But, with all your other overhead and business expenses, you need to examine these margins carefully before agreeing to a contract.
An Organic Approach
This isn’t to say that getting your product into a mass retailer is a bad thing, but it is meant to serve as a reality check. Mass retailers may not be the best place to start unless you wish to take on substantial risk and potentially overwhelm your resources—both of which could contribute to the early demise of your business.
Instead, I recommend a sales approach that builds and grows more naturally, creating demand as you go. While they may seem small or simple, these methods are a terrific way to help build your sales, increase demand, create word-of-mouth, and give yourself the chance to tweak your product or packaging, if necessary, before you produce hundreds of thousands of units. Plus, it fits with the philosophy that most mass retailers like to sell “proven” products more than “new” products. Here are some grassroots ideas:
eBay—eBay allows you to sell your product for relatively low overhead to a mass audience who may be searching for your item. Set-up is relatively simple and inexpensive, and there are countless tools to help you streamline the process, create your own store, and track your sales, shipping and payment activities. It can be an excellent way to expose your product to potential buyers on its own, or as complement to other sales channels.
