When you’re just getting started, selling into retail via a distributor may seem like a dream come true. You’ve worked a long time for this moment, and now you can finally sit back and relax while someone else presents your product to new customers. It’s a great feeling, but don’t let it lull you into a false sense of security.
Crunch the Numbers
Take the time to do the math and figure out how much cash you are actually making via distributor sales. Cash in, less cost of goods sold, selling expenses, distributor fees, customer allowances….by the time you’ve factored in all your expenses, your contribution margin might be much lower than you planned for.
If You Find You’re Not Profitable, Here’s What You Need to Do
Don’t panic, it’s completely normal for initial sales to be losing money. You’re gaining visibility and getting your product to market— both good things. What you do need, though, is to ensure you have a viable plan in place to improve margins. You also need enough cash in the bank to make the pivot to profitability. If you don’t, expanding into a distributor network can accelerate your cash burn.
Making Distributor Contracts Work for You
Want to make this work? Understand your distributor contracts, and pay special attention to everything written in there about chargebacks. Didn’t label a package correctly? Chargeback. Shipped late? Chargeback. It all starts to add up quickly, and sometimes uncontrollably.
The ball is in your court, and it’s up to you to understand and maneuver your way to profitability while leveraging a distributor partnership. Make friends with the chargeback department and work closely with them to rectify and prevent chargebacks.
Pivot to Profitability
At BASECAMP, we can help you navigate your distributor contracts and ferret out every potential issue before it turns into a problem. If you’re wondering how to improve your margins and make the pivot to profitability, give us a call. We specialize in helping small businesses manage chargebacks, and we’d love to work with you and take your startup to the next level.
Next up: Is Inventory an Expense or Asset?