There have been a number of threads dealing with specific small business questions and situations and I know there have been a couple times where there was a bit info in one of the them, but couldn't remember which. This might make things a little easier to put the collective knowledge/experience into one place. K?

9/23/2010 10:27:01 AM

To start things off, I am looking for information concerning the decision to sell direct to a customer vs. working with a distributor/dealer network. Pros/cons to each? More specifically, as it relates to a manufacturing business scenario as opposed to a reseller position.

9/23/2010 10:27:55 AM

why didn't you just edit, been less than a minute...

9/23/2010 10:30:54 AM

^hecan'tread2

9/23/2010 10:43:04 AM

in before mambagrl

9/23/2010 10:49:43 AM

[Edited on September 23, 2010 at 11:21 AM. Reason : oh . . . . . . . ]

9/23/2010 11:20:26 AM

in before sales meme

9/23/2010 8:26:52 PM

ask the BoY who calls himself an x-GeniuS

9/23/2010 8:29:42 PM

came to post ...

Quote :

"in before sales meme"

9/23/2010 8:37:05 PM

^^^^^what do you expect me to say in here?

Quote :

"To start things off, I am looking for information concerning the decision to sell direct to a customer vs. working with a distributor/dealer network. Pros/cons to each? More specifically, as it relates to a manufacturing business scenario as opposed to a reseller position."

If you have something unique, I would go through a distributor. If not, sell directly to the customer on a local/regional level.

Using a distributor is obviously going to cost you more but get your product in the eye of the public with less hassle. Selling directly to the customer will allow you to sell at lower prices and make more profit per unit. If your product isn't unique, you're not really going to compete on a large scale anyway but marketing becomes more vital.

9/23/2010 8:52:51 PM

how ya figure?

9/23/2010 9:49:41 PM

9/29/2010 4:47:24 PM

just ask Si, man

9/29/2010 5:08:05 PM

Quote :

""To start things off, I am looking for information concerning the decision to sell direct to a customer vs. working with a distributor/dealer network. Pros/cons to each? More specifically, as it relates to a manufacturing business scenario as opposed to a reseller position.""

this is in reference to business to business transactions:

Working with a distributor:
Pros: A distributor has an established customer network giving you broad exposure to the market.
Distributors sometimes handle warranty service (you still pay for it, but they do all the work)

Cons: The distributor takes a cut and may decide to push another company instead of yours depending on the size of the cut. Generally distributors will not represent competing companies but they may decide to drop you if your competitor offers them a better deal.


Selling direct:
Pros:
Higher gross margins
Direct customer contact - you get to build your reputation directly with your customer. This can be good and bad.

Cons: You'll obviously be starting with a smaller customer base. If you can't afford an outside sales team it will be hard to gain visibility.
Direct customer contact - there's no middle man to buffer customer complaints.

9/29/2010 6:24:06 PM

Forget distributors. Unless you have a HUGE amount of funding, or backing of an established manufacturer or retailer, it's going to be a complete waste of time.

The real question to ask is why don't you know whether to sell directly to the consumer or not?

Beyond the logistics, there are several key reasons for using distribution networks, and NONE of them have anything to do with getting in "the public eye" or "more profit per unit".

Distribution is all about two things: cash flow and inventory management.

You won't get the benefits of cash flow, because you're a new company. Distributors will ONLY take on your product shipments with a deferred buyback setup (where you essentially ship them X number of units and they hold and sell those units until Y date, when you agree to buyback any unused inventory), or with a drop-ship setup (where you GIVE them X number of units and they pay you per unit sold until the shipment is exhausted).

Longstanding companies with high volume proven products have much better incentives here. Distributors wait in line for volume orders and they assume the risk of resell. They pay the manufacturer for a shipment and assume all risk for moving the inventory downstream. This allows the manufacturer to generate early cashflow to lower production costs through higher volume.

Inventory management is the other side, and the one you can benefit from. If you use distributors, it basically offloads all of those logistics from you. Yes you pay a price for that, but it will allow you to focus on your product rather than distribution and sales. It also keeps you from having to maintain warehouses, dealing with customs, shipping carriers and everything else that comes along with transportation services.


Basically, if you can incur significant cost savings or the only way to affordably produce your product is with a high-volume production run, then you pretty much have to use a distribution network.

If, on the other hand, your product has a low-volume cap on production cost and you can afford to float the cost of a run, you should sell direct.

Keep in mind that selling direct DOES NOT MEAN direct to consumer. You can sell directly to other companies to retail your product, you may also choose to sell direct to the consumer as well. There are MANY companies who have this hybrid model (Dell, Logitech and Sony are great examples) that sell direct to consumers, direct to retailers and through distributors (for different product lines and markets).

-----------

You will not get any more or less product visibility based on the choice to use outside distribution or not. Distributors don't push products they aren't invested in. They also don't handle customer service either.

9/29/2010 7:47:39 PM

^i may be thinking more in terms of reps than distributors. i work for a small smaller company with a global presence. In addition to our own team outside sales people, we uses a couple of different companies to represent us in different regions, but we still call them distributors. call them what you want, they do in fact do the things for us that i referred to above, including customer service. ymmv.

9/29/2010 11:18:24 PM

^That's definitely possible too, which is more inline with the dealer/distributor network icanread asked about very early on.

I've found that usually those folks are consumer facing companies. If they aren't reselling to another business, I don't really consider that to be a distributor so much as a partner.

9/30/2010 12:07:45 PM

Looking for info on costs of manufacturing in the US vs overseas....

Discussion during the holidays brought up the figure of overseas manufacturing being approximately 1/7th of US based.

There was nothing really to back this figure up, and of course there are countless variables that could come into play, but does anyone have any studies or info that would show the cost differences between foreign vs domestic?

12/28/2010 2:29:40 PM

It depends what you're manufacturing.

12/28/2010 2:41:02 PM

I agree with Noen, but this all depends on what you're producing or selling.

Every industry and segment is completely different. I managed marketing, product and distribution for two medical device companies and each was ENTIRELY different. Using a distributor doesn't mean you won't have to spend tons of time there either. Some distributors are needy and need sales training, collateral and micro-management.

Conversely, a good distributor or rep is worth his weight in gold and it will cost you money. They're good for a reason... they like to make money and they go where they will make money.

Research the industry, find a top distributor rep or two and take them to lunch. Pick their brain. Understand what points you have to pay them to incentivize them and filter it.

It depends entirely on your product and your marketing and distribution strategy though.

Company 1: We chose small distributors and built strong relationships with a few reps. We also had two FT sales folks.

Company 2: We had two folks managing our distribution channel in the US and I worked closely with one of the reps I knew from Company 1 who killed it with Company 2's products and also managed our relationship with a $3 billion national distributor.

You have to match everything with your product's distinct advantages like mentioned above (low cost vs. innovation for example).

[Edited on December 28, 2010 at 3:29 PM. Reason : /]

12/28/2010 3:09:13 PM

for overseas manufacturing, go check out alibaba.com. You can get a RFQ from a dozen factories in a week or less. My experience of US vs. China has ranged anywhere from 50% the unit cost down to 5-7% of the unit cost of US production. It varies wildly depending on the product, materials, size, complexity, regulations and weight.

12/28/2010 3:16:07 PM

Manufacture here in NC and provide some jobs

12/28/2010 3:57:28 PM

no because if we throw up manufacturing tariff, they might throw up engineering/design tariff, then our bright ppl be out of work, not just our rednecks and basement dwellers.

12/28/2010 4:45:21 PM

I realize this thread is about starting a small business....which I have not. Hear me out, maybe I can offer some insight.

I am in outside sales, which is currently salary+commission, but will move into straight commission starting at the beginning of July 2010. I have been in this position since July 2009. I have competition from several direct manufacturing sales reps, large distributors, and local distributors. Here are the advantages and disadvantages of each:

Direct Advantages: Immediate knowledge of new technology, no middle man mark up, one shipping bill (paid by manufacturer or buyer of goods), access to larger range of non-commodity items, control inventory, have access to many distributors that can effectively sell their goods which increases market share, and set prices of commodity they manufacture.

Direct disadvantages: Typically have 1-3 sales reps per region (i.e. southeast, mid-atlantic, northeast, etc.) limiting the number of accounts they can successfully manage/cold-call, lack physical customer service or physical technical service available to or affordable for smaller users or altogether, are sometimes not trustworthy because they will go in behind their distributors that sell their commodity to one account in large quantities (i.e. they missed a big account, and have found out about it through a distributor selling their particular product) which leads to the distributor not selling their product anymore, have too many distributors selling the product ultimately driving the set price down through deviations, possibly rely on distributors to actually sell the product, and competition from other direct sources.

Large distributor advantages: have access to other commodities that go hand in hand with other manufacturers (poor example- grocery stores sell milk as well as cereal), get direct pricing, many locations regionally or nationally easing the shipping burden of buyers with multiple locations, personal service either customer or technical, many sales reps that are able to cover a broader territory, access to multiple manufacturers of the same commodity allowing to keep prices in check, service programs that smaller companies can't offer and direct providers can't match in price or value, and experts of many many commodities as opposed to one or a few.

Large distributor disadvantages: smaller local distributors creating price wars (think Michael Scott Paper Co vs Dunder-Mifflin), direct mfg's going in behind and stealing business, limited access to all of the mfg's (you won't find Harris Teeter name brands in Food Lion and visa versa), can't truly set prices because it's based on both supply and demand, territory management, and tough growth prospects in slower economies (this is true for direct as well really)

Local distributor advantages: Typically a good ol' boy setting where the seller and the buyer know each other for years (this does happen at all levels, but mostly at the local level), local folks are right down the street and can be used in emergencies, if the local guy buys at high enough volumes then there is no shipping charge to the end user, and access to both direct mfg's and large distributors.

Local distributor disadvantages: easily beaten in price, array of commodities, array of technology, lack of trained staff, low cash flow, etc etc etc.

This is what I have noticed in my six months, I am sure there are plenty more that need mentioning. The way I am setting myself apart as a sales person is this: I go after the big accounts right now while I am new. The big accounts, if I land them, will take care of me while I am new and building a customer base. The money made off of those allows me to focus free time on smaller accounts that get me higher margins. I build up big accounts, I would like to have 5-10 of these, then get 20-30 medium accounts. If I lose 1 or 2 big accounts, the 20-30 medium accounts keep me afloat while I go after new big accounts. I don't really waste time on small accounts simply because they basically pay for breakfast or something really small.

I will say this, if you can't get a big account in the first 6-8 months (assuming you have cash flow that you can ride this long) you could be in a world of trouble. If you can get one, it will really make going after the others a lot more enjoyable and less stressful. It's simply just very exhausting wasting any time on anything other than big accounts in the very beginning. You work just as hard on the medium sized accounts and see 1/3 to 1/36 of the money in my situation.

If you have any other questions, you can PM me. I hope this helps in the slightest!

12/28/2010 7:32:00 PM

i knew it was bound to happen

12/28/2010 11:10:25 PM