Dear Design Doctor
I have a company wanting to take my products to a meeting with a very large department store, and they have requested information from me as below:
- prices per unit when ordered in batches 25/50/100/200/500/1000?
- to provide lead times on above amount?
- can i give Exclusivity?
- Is this product covered by your insurance? Do you have Product Indemnity Insurance?
I have had done a few trade shows in the past but nothing on this level. The deadline to submit this information is in 2 days time! If you can help it would be great.
“It is potentially a great opportunity for you, so well done!
You might have dreamed about getting big orders, but when it happens it is a bit scary too as it can have so much impact on different aspects of your business. There are a couple of things you need to look at:
Firstly, is this company an agent that would work on your behalf?
What is the contractual arrangement e.g. what are their potential commissioning fees, how long would the contract be for, what support can they give you (e.g. helping you with questions like these)? How experienced are they?
There are potential additional costs with having them involved, but obviously they also should be really helping you with advice in how to approach this and with negotiations to get the best deal for you. Make sure that you are absolutely clear about what the fees and costs will be, and what you are signing up for.
What surprises me slightly is the wide range of quantities that they are looking at.
It is very normal for a department store to ask for a different price level for bulk orders, but this seems to be a very wide range.
Have they identified specific items already, or do they want you to provide prices for your entire range? Is this just to give an example of your price range and level, so that they can get an idea? Before wasting your time in doing days of cost calculations, I suggest you contact them to find out exactly what they need.
The simplest way of giving prices for various quantities is to look at what you currently charge, and then give a discount for larger orders. Say you sell a ceramic vase to your clients for £80, then normally you would sell this to retailers at around £40, and it would cost you around £20 to produce. If you currently sell your to the retailer at £40 for one vase, you might drop the price to say £38 if they would buy 10, and £ 35 if they would buy 50.
This is the expectation that a department store has from any of its suppliers, but you can argue that handmade products are slightly different, and you want to limit access and keep prices a bit higher as they aren’t commodities in the same way as mass-produced items are.
Another way of doing this is to give a 3% discount or free p&p if they total order would be over £1,500 for example.
Or even better you could give them a 5% discount or something if they would pay you within 30 days (see below on cash flow). These figures are guidelines only, you need to check what you can afford and want to offer. Have a look at another Design Trust blog post What price terminology to use with shops and galleries?
How would you scale your production up?
It is really important that you are clear for yourself how this contract would work in practice. You might be able to produce 25 or even 100 of your ceramic mugs (although it might get a bit boring!), and so it wouldn’t be too difficult to identify what your cost price would be, and for what you want to sell them to the department store for.
The question is if you are able to produce (with some additional help) your products at a price that is profitable for a department store if they multiply your cost price to their retail price.
You really need to make sure that you cost your products appropriately, and then add a good profit margin for yourself. Check if you can bulk buy raw materials, which will drop your cost prices a bit, but on the other hand you might need to get somebody in to help you and you might need to get extra studio space, which would add to your costs.
The problem of course is looking at the very large quantities when it becomes impossible for you to produce them, and you would need to start working with a manufacturer to get them made for you.
This has consequences for the end result, but more importantly also:
What kind of company do you want to run?
What is important to you personally?
Do you like the design, organisation and marketing?
Or do you prefer to sit in your studio making work?
This is a personal but important question that only you can answer.
It is absolutely fine to go back to your client and say that you don’t want to produce more than say 100 of the same items, as you don’t want to flood the market and want to keep your products unique. If you know you can’t or don’t want to deliver, be honest – that’s the professional thing to do.
You can also negotiate and say that you will work with a manufacturer (most department stores probably already work with established manufacturers and might even be able to put you in contact, or you would work with the department store’s design team) as a designer or design consultant.
Especially if they want larger quantities this is a more common result where you will work as a designer and get a design fee and royalties. They will do the manufacturing, transport and marketing of the products.
The lead times will depend then on the design process and manufacturer.
The retail price is then often the starting point e.g. they will ask you to design a mug that will retail at £8.50 or so, and you will then need to work with the manufacturer to create a product that can be produced at that price.
Exclusivity is an interesting point here as it would mean that you probably would need to stop creating that product yourself (as per contract) but also as you will be competing against the department store.
So you might want to opt for designing an exclusive product for them. I strongly suggest that you then would get a design brief from the department store to get absolute clarity on what they are looking for. You can read more about exclusivity in this blog post.
You might want to consider if you would want your name attached to this product e.g. at the bottom of your ceramics and in promotional material.
Also negotiate that you get upfront ‘payment against royalties’ then, so that you wont spend a lot of time designing a product, that then still wont go to market (about 30% of designs never get to market, which means that you wont get paid while you have spend time designing). If you want to find out more about how royalties and licensing works, then check out this post.
I have never heart of product indemnity insurance. There is product liability insurance, which is an insurance to cover you if your products would damage somebody. You can find more information about this on the Business Link website. Then there is professional indemnity insurance but this is more for providing a service.
A really major element in this process is how your cash flow would be effected:
How are you going to pay for producing the products?
If you would need to pay upfront for all your costs and time for a large order than you must negotiate that they pay a big percentage of the order upfront. You will probably not be able to finance all your costs and time by yourself if this is a very large order. Department stores are getting into the habit to paying their suppliers now on 90 days, which means that you will get paid 3 months after you delivered your products to them. But most of your costs and payments were probably another 3 months before that, which means that you will have to finance your costs for 6 months.
Negotiate well on this financial aspect (and let your agent work hard on your behalf!) as it will have a major impact on your business.
To sum up my advice would be:
- Get a bit more information from your agent in the short term about what is really required.
- Obviously you will need to provide some answers to their questions now, but there are also still lots of questions that you will have. Do write them down, and don’t be afraid to ask them. If you are not at the sales meeting yourself, do write them down for your agent to get them asked during or after the meeting. This is about building a relationship, and there is always a lot of negotiation before orders are being placed.
- Think about what kind of design or craft business you want to run – do you want to make your own work or design too? Do you have the skills? What would be your ideal in 5 years time?
- Making a massive big jump to having 1,000 produced by a manufacturer might be a step too far at this stage, but negotiate and ask lots of questions to make this potentially interesting deal work for YOU. Start with a smaller batch production or ask if they would be interested in you designing for them (and them working with a manufacturer instead of you), learn how it works and see if that’s for you – it will be more for the experience than the money at that stage, but you then can start approaching other companies if you are interested in doing design work.
- Turn the question around to them: what products are they looking for, at what price level, and when would they like to have them? Then do a proposal to see what you can deliver.
Good luck, it is a great confidence boost that they are approaching you, and that you are becoming a credible business, although it might scare you right now! Do let us know how you get on.”
Do you want to sell to big retailers?
If you want to sell to shops and retailers and want to learn about all the different aspects I mention above, then I strongly suggest that you get Clare Rayner’s book: How to sell to Retail.
In this book she shares with you 12 steps on how to get ready to sell to big retailers. It’s one of my favourite books, and I learnt a great deal from reading this book, although I have got loads of retail experience myself.