Want to quickly ramp up your sales while generating extra cash to finance your next production run? Then it’s time to grow your global distribution channel.
Finding distributors for your products in foreign territories may seem like an overwhelming prospect if you’ve never done it before, but it’s certainly possible. SoYoung now has distribution in 8 territories including Mexico, Australia, The Netherlands, and Korea – with more in the works. In this week’s post, I cover the pros and cons of distribution and outline some of the best ways to find distributors in foreign markets.
What is distribution
Distribution means granting the rights to sell your products in a specific region to another business entity or individual. This is typically done to cover a part of the world in which you have a limited presence and lack the internal resources or knowledge to cover the region. In essence, you are outsourcing the management of your brand in that region to a 3rd party who will handle all sales, fulfillment and management of customers in the defined area, for a defined period of time.
The pros of distributing your products
Increased Sales Revenue
The most obvious benefit of growing your global distribution channel sales is that it increases your bottom line. These tend to be large bulk purchases that can instantly add zeros to your revenues. They also tend to be repeat purchases. Since the distributor has more skin in the game than your typical retailer skin, they will be more invested in growing your sales in their territory, leading to predictable increases over time.
The ability to establish your brand in new markets without an upfront cost
Distribution gives you access to new markets with relatively little investment. Typically your distributor in the region is assuming all the risk for launching and selling the product in that territory. This allows you to increase your overall brand presence while outsourcing most of the work involved.
While the agreement may be exclusive, typically a distribution contract includes a clause that allows you to end the agreement with a certain amount of notice and or at the end of a certain time. You may continue to maintain the relationship indefinitely, but if you plan to eventually own the region yourself, you will have already established a brand presence as a foundation for further growth.
Increased buying power and cash flow
Unlike a wholesale relationship, a distributor will typically purchase your products in bulk and have them shipped directly from the factory. Usually, a distributor will pay you a deposit towards an upcoming production run that you can take to the factory to help finance production. With the net new sales that the distributor is projecting, you will also be able to increase your minimum orders which may increase your buying power with your factory, lowering your manufacturing costs or simply making a manufacturing run possible.
The cons of distributing your products
Distributors require time and effort to manage
While it is tempting to view distributors as a low maintenance sales channel, this may not be the case. All relationships require some level of administration and management. Distributors may negotiate for better pricing when they get some traction or may have issues specific to their region that you have never dealt with before. Also, if a distributor is underperforming, you may be tasked with the uncomfortable process of ending the agreement.
Negative impact on gross margins
While distribution is a generally a lower risk channel – since you are taking distributors orders and deposits to the factory – it is also a low-margin channel. Distributors will typically ask for a discount off of your wholesale price that can range from anywhere between 25% to 50%. Assuming you have the margins, this is the price most brands are willing to pay for guaranteed sales. However, when looking at your overall financial results, you will see a serious hit to your gross margins as a result of increased distribution sales.
Increased Legal Costs
Because of the size of upfront investment a distributor is making in your products and building his own infrastructure to sell them, distribution agreements tend to require a much higher level of legal rigor than a standard wholesale agreement. Also, in entering foreign markets, you may be required to purchase trademarks and website domains in those regions as well as actively defend them when necessary.
How to find foreign distributors
Many distributors attend trade shows looking for new products to represent in their home market. If you are able to attend some of the leading international trade shows in your industry, you may find yourself being approached by foreign distributors interested in your product. This is also a rare opportunity to meet face to face with people who live far away and get a better sense of whether they are a good fit for your brand.
Another way to find distributors is through online research. Look for complementary brands – not direct competitors – and research who they are working within various regions. If they are doing well, they are likely attracting the most successful distributors in foreign territories. Find the distributor’s website, reach out and see if there may be a fit.
If there is a retailer in a target region that you feel would be a good fit for your products, ask them who the best distributors are. Retailers are on the front line with consumers and make the ultimate decision whether to stock products, so they will have a good idea of the landscape and which distributors are doing well. If possible, you might consider securing an anchor retailer in a region in advance of a distributor. This will allow you to test the market and hopefully provide extra incentive to distributors by proving there is demand there.
As you attend more trade shows and get to know the lay of the land in your industry, you will make contacts with other brands in your space. Leverage these relationships to trade industry knowledge and see who other people are having success with and how they are approaching the question of distribution. You may get some good contacts and feedback on what is working and what is not
Have them find you
Finally, SoYoung receives unsolicited distribution inquiries from people who have heard of the brand and visit our website. Have a page or paragraph that speaks to potential distributors and who to contact, then have a process in place for vetting and dealing with distribution inquiries.
What makes a good distributor
Nothing trumps experience when it comes to distributors. While a new company may have a lot of enthusiasm and gumption, they may be unrealistic about what it will take to launch a new brand in a new market. I would strongly suggest looking for people with a track record to work with when entering a new market.
An established network
The biggest value of a distributor is their ability to get you into retailers that can quickly establish your presence in a new market. An established distributor will have a network of retailers that they are already working with and to whom they can sell your products along with the products they are already representing
Make sure that the distributor has experience in your product category and has dealt with complementary products. There is not much value in working with the distributor who will be peddling products that compete with yours or are in a completely different category.
Passion for you products
Get a feel for what the distributor really thinks of your products. Has some detailed questions about what they think of the product and make sure that they have a good understanding of what makes your product unique and different. Are they just looking for a quick sale or are they truly passionate about the products? Do they believe in the brand vision to the point where they will weather adversity to ensure the products are successful in their market.