Sell through distributors or dealers for small manufacturers?

[rx8pilot]

I have a small business that designs and manufactures specialty commercial products for about 10 years now. There has been a struggle the whole time with how to best sell my products to a relatively small market.
There are modest number of dealers that could possibly move the product - but of course they cost money and want to prevent me from selling direct or at least prevent me from offering any discounts. This is fine, if they were able to commit to buying in a volume that can keep my wheels turning - but they all want to start with a couple of units and 'see how they do'. In the mean-time, they expect me to sit on my hands and protect their pricing.

I am not a salesman, shipping and back office operations are painful. With that said, we have a book of business and have survived for a decade, but clearly with a ceiling on sales. On one hand, dealers seem like a good idea in that they deal with customers, shipping, etc and in theory can sell more than we ever could. On the other hand, they always want to put a lot of restrictions on our direct sales before they have sold anything at all. It is hard/impossible to do direct sales and dealers at the same time (so it seems).

Are there any other low-volume specialty manufactures on the forum that deal with this kind of thing? I would also add, that when I am shopping for various commercial products - I generally dislike the people in the distribution/dealer chain since they rarely know what they are talking about. I end up talking direct to the manufacture to get useful information about the product. The dealer ends up being an order taker and keeps 25+% almost every time. As a customer, I know that the useless dealer is the reason I am over-paying by 25% even though the manufacture did all the work. In many markets, there is a distributor, a rep, and a dealer that all get a piece which can end up being 50% of the total customer cost or more - but that is more for higher volume I think.

Stick with direct sales and accept the challenges that entails - or try to develop a dealer relationship that could potentially allow us to grow (in both volume and profit hopefully)

[System Error Message]

couple of units is called samples, they cant bind you with that. Only once they decide to buy volume of you that you can get some sort of contract with them. However try to avoid contracts that prevent you from selling to others. I know im not someone who sells stuff but i do know that businesses that end up with contracts that prevent selling to others tend to have trouble down the road.

Fixed pricing really depends, it can eliminate competition and allow for all to either raise prices or no one gets to raise prices.

Think of it like this, you can only produce x number of units at a time, someone else may be buying volumes from you at a fixed price but may not fill up all your capacity, it doesnt mean you cant sell that capacity for normal customers as it isnt a fixed volume. It also doesnt mean you have to stick to one buyer, you can have multiple contracts to supply to if you can keep up to keep things competitive. It really doesnt matter if you sell to each at a different price, just do your math and economics. I've always scorned a ceiling prices because this just makes the product less valuable as a lot of money is paid that doesnt involve anything to do with the product as the government also takes a significant cut via taxes. As a dealer or distributor it is your job to get products to their end points as best as possible with the lowest overhead and price possible and making a profit in the process. Price increases affect customers in a non linear fashion as VAT or sales tax increase as well so ceiling prices is very bad for the customer as it means the customer is paying tax for your profit rather than for the product, this is if your customers are normally end users.

So if someone wants to make a deal with you where you cant sell to others, dont take that deal if it is stated in the contract. If they want to sample first let them but that shouldnt be a reason for you to wait, just do everything as normal until they confirm something with you.

For a manufacturer, all that matters is that the production line is fully used and all units sold, so obviously selling to a distributor or dealer is better and make sure you take as few steps as possible for the product to reach the consumer. Its easier that way as it lets you focus on being a manufacturer. That doesnt mean you cant do both but if you are in a deal dont try to undercut them.

[tautech]

My 2c

The best marketer of your products is YOU.
You don't seem to have a website linked to your profile, why not? Don't you have one?
Throw some resources at that, hell it's not even hard to do yourself but do spend some time and energy on SEO as it will pay dividends. Use eBay too and other online sale mediums, while you might not like paying the sales fees it's less that distributors will take and you gain direct contact with all your customers too. 
It's then not hard to build a database for warranty needs and you have contact details to inform them of critical FW upgrades and "special" deals as needs be. But don't abuse having that customer list, use it sparingly as everybody hates spam.
Additional profit retained from higher sale direct pricing should be well able to fund the additional cost of keeping marketing "in house".

Dave has a chat about his distribution reasoning in his recent EEVblab#1 EEVcomments#1, hunt it out. 
https://www.eevblog.com/forum/blog/eevcomments-1/

[rx8pilot]

No offense but if they are useless then why are you courting them?

I am not courting the dealers as much as I am trying to understand how they can help and what they can offer.

They deal with all the stuff you find distasteful plus they have an established distrubution chain, will have to listen to customer complaints about your product etc...Thats what you are paying for.

Yes! logistics of the sales is not trivial or free. On the customer complaints/questions/support topic - most customers don't get a real actionable answer from the dealer who does not know the details of our product. Either the customer contacts us directly or the dealer contacts us and relays information to the customer. Either way, we are doing a lot of the work. With that said, the dealer has access to more customer contacts than I ever will. What they do with that is unknown.

The best marketer of your products is YOU.
You don't seem to have a website linked to your profile, why not? Don't you have one?

Yes, I agree that I am the biggest fan of our stuff. The problem is that I spend so much of my time designing and manufacturing I don't have much time to be that marketer. I am making significant progress getting some of the manufacturing processes outsourced that will free me up to do other things. I am cautious about general advertising with SEO type efforts. The problem I have had in the past is that general purpose traffic gets us a ton of 'wannabe's' asking a lot of questions and taking a ton of time. It can be hard to figure out who is actually going to buy something. This, of course, is part of what makes a dealer earn their keep if they are actually pushing our offering I guess. We struggle the the niche nature of our products that usually need a lot of explanation. Essentially it a solution to a problem that the end user barely understands, if at all. It is power management for high-end cinema camera systems which gets rather complex and difficult. To the end user - we sell a black box with an LCD display and some connectors. When they ask what it does and why it costs so much, the answer has to be well considered to satisfy a non-technical customer. Really difficult to figure out how to get anyone to explain it in a way that it becomes interesting enough to actually pull out a credit card or write a purchase order.

For a manufacturer, all that matters is that the production line is fully used and all units sold, so obviously selling to a distributor or dealer is better and make sure you take as few steps as possible for the product to reach the consumer. Its easier that way as it lets you focus on being a manufacturer. That doesnt mean you cant do both but if you are in a deal dont try to undercut them.

That is true, I need to sell at a minimum sustainable level which is the break-even qty plus whatever it takes to make it interesting. Recently, I have been controlling demand with discount deals. For example, I offered a big discount to customers willing to wait a month for delivery. That allowed me to more efficiently build the product based on known demand. If you need something the next day - it is full price. I was pleasantly surprised how many people were willing to wait so they get a lower price. The downside to that approach - is that no dealer is interested because their cost is the same as what I am selling direct. I cannot double that discount to give the customer a great deal and still give the margin the dealer wants without becoming a charity.

Interesting thing - I can move a lot more product when I sell direct at dealer prices but I have no chance of signing up a dealer. On the other hand, I can sign up dealers but they have the uphill battle of selling the product at 25-30% more. We are already the most expensive and high-end option in the market category. If I try to sell direct at full price, business will be modest in terms of volume, but the margins are great. If I discount heavy and sell direct, the volume goes way up and the margins are a lot less. If I sell to a dealer, the volume may (or may not) go way up, and the margins are a lot less.

Maybe I should consider a way to 'prime the dealer pump' - giving a few of them some time to get the momentum needed to be worth it. There is a chicken and egg situation a little bit  - I need the volume asap, and they need to build demand that takes a long time and is not guaranteed. I compare that with our direct sales that are not amazing but not horrible either - we would have to give up most of that discount driven business to make dealers interested. They don't want to compete with the manufacturer for sales (understandably). Stuck in the uncomfortable middle seat I guess.

[tautech]

Stuck in the uncomfortable middle seat I guess.

Maybe, but how long for is up to you. 

IMO a good website or in my case basic with links to one with all relevant product documentation freely available can save a hell of a lot of questions that waste time. You might consider retaining access to your installation guide and user manual but a good datasheet and product description must be online.
A FAQ page on your site should be mandatory, edit/update it as needs be. If you knock together your own using one of the many website hosts templates it can easily be done in an afternoon IF you have all your info prep'ed and ready for copy/paste. The real benefit of doing it yourself is the low costs of maintenance and edits.
Protect your HW's IP imagery with watermarks and you're ready to go.

[rx8pilot]

www.solidcamera.com

[tautech]

www.solidcamera.com

Ha, my neighbour is a international freelance cameraman and probably knows of your stuff, I'll check.........

[KE5FX]

I've done business in the past selling a product that sounds similar to rx8pilot's niche market gadget(s).  I suspect what we both would like is a fulfillment house that does the following:

• Maintain parts inventory (I buy the parts, they stay on the shelf at the fulfillment house.)
• Deal with assembly from board stuffing to "box build", following my instructions.
• Run production test scripts on a platform that I provide.  Units that fail get sent to me for repair.
• Maintain a (probably small) number of finished items in inventory, again at my expense.
• Provide an API that's basically "Send item x to customer y by method z."  I'd handle marketing, invoicing, and such myself, or farm it out to other services
• Handle all details of shipping, including international sales with commercial invoices, export declarations, and so forth.  Hopefully with volume discounts from shippers.

I've run across various services that handle a subset of these tasks, but nobody that does them all.  And IMHO if they don't do them all, they might as well not do any.

Edit: yes, there are outfits that "do it all," but they aren't interested in selling 500 units a year max.

[rx8pilot]

A fulfillment aparatus would be nice. Like you said, if they can take some of the assembly, inventory, and shipping workload - they would be more valuable than a lot of dealers. My time saved can be spent marketing and interfacing with customers. Delivery times could be shorter. Life could be better.

Sent from my horrible mobile....

[System Error Message]

if selling direct means you can sell at capacity and cheaper than take that option. Im sure there will be a dealer who will be able to give a good deal. Often if you approach a distributor or dealer they will use the ceiling price approach as a risk factor or stock factor (out of stock with them being the only ones in stock).

So keep on doing what you do if it means more people will be using your product in the mean time. When more people use your product than the dealer will approach you with a better deal.

Margins arent always important, if you end up with high demand in your current method you could use that to your advantage when using a dealer. The whole point of a dealer is to give a good deal so they could buy from you in volume at a low price but offer customers who want to buy your product a price lower than what you offer if you were to ship to them immediately instead of monthly. Once you start getting deals than monthly surplus or refurbished can be sold at discounts monthly. Quality is good but quality shouldnt be expensive so just make sure you meet your targets. High demand is better than a high margin as it means a steady business (also means more profits by selling more for less than few for more). But dont set your margins too low.

Once you have lots of demand dealers will approach you for a better deal so perhaps right now may not be the best time for using a distributor or dealer. People will wait a month for quality if it is at a good price so dont worry about it. Essentially if it means the middleman(person) would be out of business he(it) will change in order to survive.

[tautech]

www.solidcamera.com

Nice website. Shame about the ugly bugger in the video. 

SEO not bad too. 
A Google of "camera power management" lists you on the first page. 

Now everybody start searching and following the hit to get Carlos higher up the page. 

[rx8pilot]

The guy in the video should be fired and take a year long vacation traveling the world with his huge severance pay.

Sent from my horrible mobile....