When you start a new business, you must plan the best distribution strategy right from the start. Your goal is to get your product into the hands of your customers effortlessly. The last thing you want is poor word-of-mouth on Amazon, Yelp, or any of the plethora of online reviewing sites that can make or break your business. Being sluggish on your delivery, charging too much for shipping, or making too many errors can be the kiss of death for your small business.
The traditional model for distribution includes wholesalers and retailers. Although it is a viable model for some, as it can help you get your product out into the world quickly, all the middlemen can eat up your profit margin, forcing you to increase your prices.
You might consider simply selling directly to your customers, if you’re confident you can find them (or that they can find you). Shrewd shoppers often prefer going directly to the source, because they know they’ll get a better deal. As long as you can handle marketing, this might be the best strategy.
Another option is to just cut the wholesaler out of the equation and sell your products directly to retailers in your industry. This is a concept can be the best of both worlds.
It’s interesting to note that some large corporations, like Walmart and Amazon, deal with many individual suppliers, often cutting out wholesalers. Although it is more work to set up so many agreements with smaller companies, they spread out the risk, which allows them a lot more security and flexibility. That’s why their prices are sometimes rock bottom.
No matter which model you choose you’ll probably want to ship your product yourself until your business builds steam. Fortunately, there are many choices for a small business. The oldest and largest companies are USPS, FedEx, UPS, and DSL. However, there are always new companies springing up to offer these giants a little competition.
When you’re choosing the right company, remember that pretty much everything is negotiable. As long as you have some volume, you can often receive discounts. It’s worth noting which companies offer free pick-up, as that saves you time (and therefore, money). Bottom line, you’ll need to spend a little time researching options and talking to live representatives to get the best deals.
Once you work this out, you’ll need to calculate what you should charge to ship your product to the client (don’t forget to take into account the cost of shipping materials, if needed). As with most things in life, there’s a balance. If you charge too much, you’ll lose customers. They tend to resent it if you try to make a profit on shipping and will cancel their order. On the other hand, if you charge too little, you could lose money on the transaction, eating into your profits. If your product’s price point is high enough, you could offer free shipping, as that is a huge incentive to many shoppers.
As your business takes off, and you have more and more customers ordering your product, you might consider hiring a fulfillment company to handle all the mundane details involved with taking orders and shipping out the product. Full-service fulfillment companies will handle all aspects of the transaction, including:
- Storing inventory
- Processing credit cards
- Packing your product
- Delivering them to the shipper
- Sending email notifications to the customer
- Handling returns
However, some would say that you should think long and hard before outsourcing fulfillment. Jamie Salvatori, founder of Vat19.com, an online store selling off-the-wall items, boldly states, “If you don’t think you can make your fulfillment operation more efficient than a third party, then you’re not trying hard enough.”
He goes on to support his viewpoint with these compelling arguments:
- Fulfillment is the last thing your clients will remember, so you need to make sure it runs smoothly. We all know how important word-of-mouth is.
- It’s inevitable that the company you hire will make mistakes. When that happens, you’ll get blamed, because you’re the person on the label.
- If you run this department yourself, you can add special touches to your shipments, like adding a hand-written thank you note or a specialty gift item with your logo.
- Another company is unlikely to take care in packaging your product the way you would. When breakage occurs, the cost of replacing the item comes out of your pocket.
If you decide to hire a fulfillment company, research them carefully. Like with anything, quality varies across the board. It’s best to use a company personally recommended by a fellow entrepreneur.
Distributing Virtual Products
Selling a virtual product isn’t difficult. Whether you’re selling music, an eBook, or software, you can create a store within your website that will take credit cards or PayPal, calculate any taxes and send the product directly to the client. The main problem is the upfront cost to put this program in motion.
A simpler solution might be to consider a shipping cart program. There are dozens of companies you can use, which will either take a percentage of the sale or charge you a monthly fee. The software keeps improving and can offer various tools to help you market your product as well.
Of course, you can always go the low-budget route and simply send the files to the client manually as soon as they pay for the virtual product. The main disadvantage to this system is that people expect immediate delivery of virtual products, and if you’re not in the office or on vacation, they may get frustrated with having to wait.
If you choose to sell your own eBooks, you need to consider how various major retailers, like Barnes & Noble or Amazon, will be affected. The loss of sales on those sites would cause your rankings to tank, which might affect future sales. However, the lure of making more per item is appealing.
There is a lot to consider when starting a new business. How you handle the shipping of your product to the client, along with the other aspects discussed, will determine the success and profitability of your company, so make sure to do proper research and calculate all the costs carefully. Once you set your system in motion, you can make adjustments, but a major overhaul will be inconvenient. It’s best to get it right, right from the start.