A BUSINESS QUESTION

[sawdust1]

As well as my furniture making and property maintenance business i have my web based Sunnyfields poultry housing and i have been asked by a couple of online shops if they could stock my products on a drop ship basis, but i can't see how this will work and i will try to explain why.
Say an item is costed at materials + 10% wastage + hours x (hourly rate to make) and this total x 20% for mark up and say that item is on my web site at £100 with no VAT ( not VAT registered). Now an online shop wants to sell them on their site they need to add on VAT and with a payment fee of say 3% and if their mark up is 20% then that item on their shop will have to be £148.32 approx.
So that item on my site will be £100 and on theirs £148.32, now would you not be peed off if you purchased it from them.
And when you purchased a large item say for example for £400 from my site then you would be paying £494.40 approx on theirs.
As i always arrange delivery via email from my site and enclose assembly instructions with my name on then their customer will see the item is from
me and hopefully take a look at my site then they will see the price difference.
I could not lower my prices so really can't see how i can sell via another shop or a'm i missing something.

 

[AndreD.]

If I understood correctly I think it doesn't matter how much they're selling it as long as you have your profit when you sell your product to them.
What i mean is, lets say on a £100 product you get £20 direct profit, doesn't matter if they sell if for £200, you already made your profit.

In the end of the day I think its up to the end customer to search the lowest price possible, definitely it is not up to you if they get the product elsewhere twice the price.

I am new to the forum, but that my opinion.

Best Regards
AndreD.

 

[adidat]

I suspect if you agreed they would want to pay you less per unit. Unless your product is under priced.

Adidat

 

[Shane]

For them to get it cheaper they would need to obligate to a certain number from you, if that is possible, and commit to an appropriate payment schedule

 

[RobinBHM]

It is a common selling issue.

Large companies that sell through retailers will often either refuse to sell direct to the public or will sell at a high price. That way they are not undercutting the retailers.

My suggestion would be to offer a rebranded range to the retailer so the same model is not available direct from you.

 

[AJB Temple]

You are selling retail for £100. They will not buy from you retail. They will not buy from you at all if you try to charge them retail and compete against them with a lower price.

And in my view your costing is illogical. What you sell for is the price the market will bear, maximised. Your costs are what you must spend, minimised. Difference is profit. You can apply a variety of different accounting techniques to consider contribution, gross profit, net profit pre tax etc. A mark up of 20% from manufacturer to retail is not great really.

Selling via third parties for someone aiming to make money is one of two main games: very substantial mark up for one-off unique pieces (think artist) or a volume game with costs driven down. Re-seller will seek to drive your prices down, make you finance stock, defer payment to you, put you on risk of no sale or returns, and so on. Make sure that you are clear who has title at all times until you are paid in full.

 

[Cordy]

Sawdust
Hi, just looked at your site; good product

Sizes in inches prices include VAT

Are you allowed to say 'include VAT' if you are not registered ?

 

[petermillard]

Sizes in inches prices include VAT

Are you allowed to say 'include VAT' if you are not registered ?

Well, he'll be paying VAT on the materials, same as any punter, so effectively he's passing that on. But I agree, it could cause some confusion if someone who is VAT registered (e.g. the retailers the OP talks about) buys one expecting to get the VAT back, but can't. It's a tricky one, as saying 'no VAT' isn't entirely true either, and saying something clever like 'VAT included where applicable' just causes more confusion - DAMHIKT.

"We are not VAT registered - there is no VAT to be added to the prices quoted" is probably the most accurate - if long-winded - way of putting it.

Re. The OP's original question - have you had a discussion with these retailers yet about what they're expecting from you, or how they're expecting the arrangement to work? Like others have said, I'd expect them to be looking for a trade price from you that would give them enough margin to offer the goods in their stores without charging a large price premium, but until you know for sure we're all just guessing, really.

Cheers, Peter

 

[sawdust1]

Thanks for the replies chaps.
Cordy and Peter valid points regards the VAT, i will contact my web designer to change this.

 

[sawdust1]

When i have been approached by a couple of retailers it was on a drop ship basis whereby they would sell my product on their site take payment then send me customers details, i then make /arrange delivery and invoice the retailer at end of the month. They like this arrangement as they hold no stock and have the money sitting in their account until i invoice them for the goods.
I would like to change the name of my website as i think poultry housing is a bit limiting and introduce more products and approach various country stores, pet shops and garden centres to build this side of things up. Although i would take a smaller cut, i won't have all the advertising costs. But as i see things i can't be selling to the public and to the trade.
I was once contacted by sutton's seeds a very big garden supplier but i told them this would be to much for me to take on.

 

[Sheptonphil]

But as i see things i can't be selling to the public and to the trade.

You can at the same prices. If any of the other companies can sell your product at £490, so can you. You can also put on 'special offers' each month or whatever and reduce each range in rotation for a given time. That way you are selling at the same price as retailers, they get their markup, you get more profit from full price sales, no less profit than now for 'reduced price' sales. Win all round.

And yes, reference to VAT should be clarified on the site sooner rather than later incase a VAT registered customer reclaims the stated VAT, effectively illegally.

Phil

 

[Cordy]

then make /arrange delivery and invoice the retailer at end of the month

No way !!

If your agent gets money before sale, so should you
It's very easy with computers

Should your agent have money problems before settling; you could be out of pocket big time !

Re VAT, personally I would just not mention VAT in your advert
Ring your local VAT office for clarification

I've been in business since 1967 btw

Good Luck

 

[Alexam]

Cordy is quite right. Many good business suppliers have gone out of business by supply and no pay. They could go bust, and your are left wil no product and no money.

If you can produce more, you should be able to sell more with the right promotion. Don't get yourself into a position of insecurity, which you would be doing on the basis you have suggested.

Look how many builders have gone out of business by working for the council and not getting paid for months and months. There are no guarantees, so watch out.

 

[sawdust1]

Thanks chaps VAT now removed.

 

[beech1948]

Sawdust,

I hesitate to say some of this but I do mention these things with the best of intensions for you. Here goes:-

1) Your retail prices/end user prices seem to be a bit on the low side. I recall seeing mention of a 20% profit. That is not enough to share with a retail seller. Retailer will need a 50% or larger margin for themselves and I do not see where it will come from in your current operation. Can you show what the competition charge and compare to your prices to show you are not too low an end user price

2) Drop shippers are looking for something for not very much effort. Yes you get the sale but you pay for all of ther product, P&P, liability, labour costs etc etc. Dropshippers get paid upfront before they send the order to you to fulfill so they should send you money with orders or you do not accept the order. Dropshippers will not take on any warranty or liability you will still have this.

3) Any dropshipper should earn their discounts/profit by meeting minimum order levels on a monthlyor 6monthly basis.

4) Also any retailer should meet the same conditions....£ with orders. Do not extend credit to them ubnless desparate and pushed by a sure thing and agree volumes.

5) If successful then what is the expected volumes, can you produce these yourself or will you need help.....and that help will change the cost balance and make cash flow harder to achieve.

6) Can you volume produce flat work parts via CNC. Has a high capital outlay but a lower operating cost.

good luck
Al

 

[sawdust1]

Thanks beech and others for the input.
Although i have been selling my wares to the public for 26 years now, selling wholesale was going to be a new direction, so a lot to take on board.
By having set products and cutting lists for that product and dedicated jigs is as simple as i can get the production.

 

[RobinBHM]

To move to a wholesale operation you may need to think of it as a different business model.

Your labour cost will need to go down and that will imply more machinery. It is possible to use low tech machining, for example have a number of routers, each set up for one operation. The key is to cut the set up time for each operation down to a few secondd.

You msy also consider the option of investing more money into search engine optimisation so your own website gets more hits and therefore more sales. If you can increase sales by still supplying direct maybe that would be an alternative way forward, instead of giving a cut to a third party.

When I designed my website, I joined ukbusiness forum and sought advise about website design. If you pay to join, there is a website review section, where you can link your site and the professionals on the site will offers advise, suggestions etc about your site. Do you have google analytics set up? It will tell you how many hits you get, where from etc etc.

Nowadays lots of businesses use ebay and amazon marketplace, but they have the same problem as you are facing, Amazon costs, say 20% but tthe price has to be the same as on their own website.

 

[sawdust1]

Although i have all my furniture making gear, to make these products all i need is a radial arm saw and a sawbench.
Anyway i don't want to drag this post out anymore, so thank guy's for the input it has given me lots to think about , i have several iron's in the fire, will see how things pan out and report back.

 

[beech1948]

Sawdust 1,

Interesting that you have been selling to public for 26yrs. Maybe you could share with us a few tips and ideas from this huge experience. For example what sort of things do you sell, how complex, use of jigs to speed up production, where do ideas come from, how do you design products, what not to make and not to sell.

I ask because my experience has been of built-ins and bespoke cabinets eg TV lift cabinets in every thing from pine (ugh!) to rosewood.

 

[sawdust1]

Hi beech
I have been making furniture for a living for 26 years, all made to order so bespoke one off's. No advertising all word of mouth. Anything from kitchens to tables and anything in between. Yes built in as well, some joinery, doors and windows and a bit of site carpentry if asked.
I started up my web based Sunnyfields poultry housing about 4 years ago when things slowed down, its kept my head above water.
I still take on the furniture have 2 built in wardrobes and a built in alcove unit to make for different clients but shall be pushing the Sunnyfields products under a new name this year as i will be introducing more products.
Easier stuff to make, no joints, no sanding and no finishing as all the timber is Tanalised, no skill required really.
I use a lot of pine for the furniture but always with a painted finish.
Could go on but i don't want to bore anyone.
Their is a wealth of knowledge on this site, so your questions will be answered somewhere.