[angus242]

Recently, one of my suppliers went under. This has turned out to be bad and (possibly) good. Part of our business model has always been to not stock inventory. Small stuff that we use all the time, yes but nothing like building materials or greater.

Well an opportunity has just presented itself to us to become a distributor for some of the materials the old supplier used to carry. I'm wondering if anyone has some stories or advice about actually selling a product they use often.

On the good side, there is definitely a market for this. I know our old supplier was on pace to sell a substantial amount, even during these lean construction times. Also, we would now be able to get these items for ourselves at around an additional 25% discount. Our competition could not beat our prices!

On the bad side, we'd become a "store". A boat-load of additional paperwork, phone calls, bills, invoices and a new employee awaits us.

I don't see how this can really be a bad thing....as long as we except the additional amount of work necessary with the territory. The manufacturer understands the trying economic times and is willing to work with us to become an establish distributor for them. We are not locked into any kind of contract. We don't have a minimum sales number that needs to be reached yearly.

My hope and our 3 year business model has us getting in on the ground floor of an opportunity that may lead to us being a successful and hopefully, very busy distributor once the construction industry turns around. I don't ever expect things to be like they were 5 years ago but things will change. Even a 15% increase in sales over 3 years would be huge for our little company.

Am I not thinking about something? arty:

 

[CookeCarpentry]

Am I not thinking about something? arty:

You will always not think about something. It's those that worry about what they might be overlooking often find themselves missing out on an opportunity like you have in front of you.

Care to enlighten us on the product you may be selling? Would there ever be a time this product becomes obsolete? Would you be selling to competitors (other installers/contractors)?

Would you (can you) operate under the same business name, or would you now own two businesses?

What type of costs incurred with being a "retailer" such as warehousing, distribution, staffing, technology, etc.

I am certain you thought of all of these (and more), but am just throwing out my initial questions as food for thought.

 

[bert0168]

Although I don't have any related experience to comment on, I think your plan makes alot of sense. I'd jump on this if I were you.

If you don't mind saying what is the type of product (not name brand)?

I assume it's related to kitchen and bath. You may not need to actually 'store' items or have an actual store for customers to get off the shelf items. Depending on what it is, could you maintain a showroom? I would guess you could get the product within a couple of days as needed.

Look, if the distributorship proves non-viable, you always have the construction side to fall back on.

 

[bert0168]

You will always not think about something. It's those that worry about what they might be overlooking often find themselves missing out on an opportunity like you have in front of you.

Care to enlighten us on the product you may be selling? Would there ever be a time this product becomes obsolete? Would you be selling to competitors (other installers/contractors)?

Would you (can you) operate under the same business name, or would you now own two businesses?

What type of costs incurred with being a "retailer" such as warehousing, distribution, staffing, technology, etc.

I am certain you thought of all of these (and more), but am just throwing out my initial questions as food for thought.

Good point, I didn't think of that but I would guess he'd need to have 2 separate entities to keep it simple bookkeeping wise and for legal reasons.

I am sure there is someone here that has something set up similar to what your looking to do.

 

[angus242]

Care to enlighten us on the product you may be selling? Would there ever be a time this product becomes obsolete? Would you be selling to competitors (other installers/contractors)?
For right now, I don't want to mention the material as someone else could attempt to "steal" the distribution from me. The product would not become obsolete and yes, I'd be selling to competitors.

Would you (can you) operate under the same business name, or would you now own two businesses?
I can and would be selling under our current business name. I have contacted my insurance company and everything is solid (including the increase insurance premium)

What type of costs incurred with being a "retailer" such as warehousing, distribution, staffing, technology, etc.
Our only costs are a new employee, 1 computer and the necessary advertising. However, the new employee is actually the old suppliers employee. She has a very good chance of bringing a substantial portion of the old customers with her. No warehousing. No inventory. We have contacted a distribution company that currently ships the product about doing our deliveries. The cost of shipping is rolled into the pricing.

I am certain you thought of all of these (and more), but am just throwing out my initial questions as food for thought.
Thanks and I'm willing to hear anything else you guys have to say. I agree, you can never think of everything.

 

[CookeCarpentry]

Good point, I didn't think of that but I would guess he'd need to have 2 separate entities to keep it simple bookkeeping wise and for legal reasons.

I am sure there is someone here that has something set up similar to what your looking to do.

Bert - you must have read my mind when I wrote that. The only two reasons I came up with for a separate business entity was to 1) make accounting easier, and 2) limit liability between companies (legal reason).

 

[CookeCarpentry]

Angus - completely understand about not wanting to divulge the product.

So you would be a distributor for the manufacturer? Does the manufacturer currently sell direct? If they started in the future, what would that do to your business?

Would this product require a showroom, or would it (could it) be all web-based?

Do you feel confident the current (old) employee would work for you if the deal goes through? Is she aware of the current status of the business she works for? What if she does not come to work for you, will that effect the "substantial portion" of old customers?

 

[angus242]

Angus - completely understand about not wanting to divulge the product.


So you would be a distributor for the manufacturer? Does the manufacturer currently sell direct? If they started in the future, what would that do to your business?
Yes, we would be the 4th distributor of this product in northern Illinois (Chicagoland area). The manufacturer won't overlap territories. They do not sell direct. If they starting selling direct, I would obviously lose business but the increased costs (to others) would not allow those buying direct to achieve my discount so I would still be able to sell to my remodeling customers cheaper. The manufacturer could not sell direct at the same price as to a distributor.

Would this product require a showroom, or would it (could it) be all web-based?
It could be all web-based however, we going to open a store front. This helps us twofold. Obviously, the displays for people to see/touch are huge. This also gives the remodeling business a big increase in visibility. Thing is, we will open the store in a development that already houses our lighting supplier, stone supplier and glass supplier. There is also a flooring store and window treatments and wall covering store too. It wasn't setup this way, but the development has just evolved into this.

Do you feel confident the current (old) employee would work for you if the deal goes through? Is she aware of the current status of the business she works for? What if she does not come to work for you, will that effect the "substantial portion" of old customers?
Yes, she would...assuming we agree on salary. The current state of the business she works for is closed :laughing: As of yesterday, she is unemployed. If it doesn't work out with her, yes, I suspect we would not be able to gain as many customers as if she was to work for us. I have had a working relationship with her for 5 years so I know her pretty well. She divulged a lot of information about how the old company did business, what her markups were to us and her other customers. I know what the old supplier did in terms of volume over the past 3 years. I also know what type of pricing would be necessary to gain or regain some of her old customers. The pricing on a few of the large builders is very aggressive. I get that.

 

[CookeCarpentry]

What are you waiting for? :thumbup:

 

[ECinc]

I would have a hard time buying something from one of my competitors. You would have to be the only one with that product that I must have or be selling it for extremely less than I can buy it somewhere else.

I just read the whole thread. If you are going to do this I would suggest NOT advertising your remodeling business in the same store front as the product. Major turn off for any of your competitors to send in their clients or potential clients in fear of them just getting a price from you for all the work.

 

[Mike Finley]

It's more common then you think, especially when the manufacturer uses territories.

 

[angus242]

The Chicagoland area has a population of around 10,000,000. There are plenty of remodeling opportunities out there.

Why does it make a difference where you buy your supplies from as along as you are being taken care of? You are getting the same product at the same price but instead of paying company A, you're now paying company B. I'm not taking business away from you, I'm helping your business by supplying a product that you use.

Think of it like my custom cabinet supplier. He has his own business and his own retail customers. He also does his own installs. I don't have a problem sending my customers to his shop. If he were to steal my business, he would stop getting any business from me. Most suppliers are similar. Very few don't offer any form of install services.

We are looking to sell 2 items; either our (entire) services or this product. Either way I'm making money. I have no incentive to steal other contractors customers. Actually, other contractors would be our best customers. We don't have to advertise to them, spend any time with design or the headaches that can come with an indecisive customer. I'd much rather sell to someone who does all the work than a retail customer that has to be hand-held through the entire process.

It's not as bad as you think.

 

[CookeCarpentry]

I would have a hard time buying something from one of my competitors. You would have to be the only one with that product that I must have or be selling it for extremely less than I can buy it somewhere else.

I just read the whole thread. If you are going to do this I would suggest NOT advertising your remodeling business in the same store front as the product. Major turn off for any of your competitors to send in their clients or potential clients in fear of them just getting a price from you for all the work.

The millwork and lumber company I use has an installation division. Yet I still feel comfortable sending customers to them to pick out doors, windows, millwork, etc., and I have not lost a customer to them...because they would know if it happened, I would no longer be a customer of theirs (the lumber yard).

 

[concretemasonry]

Someother things to think about -

How about sales taxes and the necessary paperwork. That is not just as simple as adding more volume to what you do now since it is really a new business and your incorporation paper may not cover product wholesale/retail sales.

If you do not charge yourself the same price as you competitors, you could be facing problems if someone (rightly or wrongly) decided to complain. Illinois gets tough on things like that.

Are there any minimum sales activities required to maintain your territory and exclusivity? Many people just grab a license or distributorship to tie it up, but it could be pulled if minimums in sales and service are not maintained. the people that control the ownership details and requirements frown on having a territory tied up.

there is not question that some customers/competitors will be lost, especially if you are a short timer and no strongly developed friendshipe with your competitors. Trying to maintain a sales level is always difficult for a new business.

 

[angus242]

How about sales taxes and the necessary paperwork. That is not just as simple as adding more volume to what you do now since it is really a new business and your incorporation paper may not cover product wholesale/retail sales.
We are set up to sell a product. When we incorporated we were looking at buying containers of tile to sell. Economy tanked and we never got around to it.
Our accountant will help set up whatever we need to do to take care of the government's cut. We already have our accounting program established to sell this product.

If you do not charge yourself the same price as you competitors, you could be facing problems if someone (rightly or wrongly) decided to complain. Illinois gets tough on things like that.
I guess I don't completely understand what you're saying. I know the old supplier had different multipliers based off volume of sales. We'd be doing the same thing. As a distributor we are buying the product at cost A. We can then resell at whatever cost the market will tolerate. If someone doesn't like our pricing they can negotiate or choose to buy elsewhere, right? For our remodeling company, the process is the same; we buy from someone and then sell to a customer. Difference is the cost when we buy.

Are there any minimum sales activities required to maintain your territory and exclusivity? Many people just grab a license or distributorship to tie it up, but it could be pulled if minimums in sales and service are not maintained. the people that control the ownership details and requirements frown on having a territory tied up.
No minimums to sell. However there are financial goals they set for us. If we reach them, we get a better multiplier. The following year if we don't maintain, we lose the extra discount and back to square one we go. The distribution agreement can be pulled if we get too many service complaints.

there is not question that some customers/competitors will be lost, especially if you are a short timer and no strongly developed friendshipe with your competitors. Trying to maintain a sales level is always difficult for a new business.
For our business model we are assuming we will be able to sustain only 25% of the old suppliers business. I feel that's reasonable, especially since we are hiring the suppliers old employee. She will certainly be able to ease old customers to a certain extent. She has been in her business for 15 years and has a very good following in construction supplies. Realistically I'm hoping for more business from the old supplier but I feel my estimate is conservative enough. We are also getting the backing from the manufacturer. So if anyone contacts them directly and they are located in our territory, they will be directed to us. I do hear what you're saying about being a new guy on the block. Point taken!

 

[orson]

Angus,

You said you won't be signing a contract with the manufacturer.

What happens if you invest in all this expanded overhead and then the manufacturer yanks your distributorship and gives it to someone else?

I would make sure you have it locked in in writing that they are going to stick with you for at least 5 years to make the kind of investment you're talking about.

 

[angus242]

Angus,

You said you won't be signing a contract with the manufacturer.

What happens if you invest in all this expanded overhead and then the manufacturer yanks your distributorship and gives it to someone else?

I would make sure you have it locked in in writing that they are going to stick with you for at least 5 years to make the kind of investment you're talking about.

EXCELLENT point Orson. I have a call in to my rep today asking about this.

That's why I ask questions here.

 

[Tscarborough]

If it is a contractor only product, do not plan on selling much locally to your competitors.