As a supplier, there are many benefits to using distributor companies. A distributor company
Already has a built-in customer base to scale sales
Has expertise in selling similar products
Can purchase the product directly, providing immediate cash
However, while the distributor-to-retailer model offers various advantages, solely relying on it can be detrimental to your business.
Challenges with Distributors
A distributor company’s main goal is to build their business, not yours.
Distributors want to minimize the number of suppliers that speak to individual retailers by promoting the idea that it’s easier to go through one distributor versus many individual suppliers for product needs. The idea being a retailer can receive many great product lines without the hassle of managing supplier relationships.
In theory, suppliers would benefit equally, yet this does not happen in practice. By distancing suppliers from their product, retailers build loyalty with the distributor brand rather than the suppliers’. When something goes well with the product, the distributor receives the credit. When there is a product issue, the fault is placed on the supplier.
Suppliers have another disadvantage. Distributors control product pricing, which means they can lower prices to hurt a supplier’s direct-to-retailer approach. This handcuffs a supplier’s growth, especially if a distributor goes out of business or decides to stop selling a supplier’s product.
The solution? To be more profitable, a direct-to-retailer supplier needs to diversify its sales approach.
Diversified Sales Approach
Diversification is not a new investment strategy. Financial planners have long preached that asset diversification is one of the top investing rules. This approach protects your assets, works to avoid catastrophic losses, and expands your wealth.
Diversifying from distributor-retailer relationships to direct-to-retailer sales builds loyalty with your company, ensures price control, and allows you to own your brand messaging in the market. Moreover, this can prevent a major business impact if a distributor company decides to eliminate your product, reduce their volume of orders, or in extreme cases, goes out of business.
Internal Sales Team
When building a direct-to-retailer strategy, there is no quick fix. It takes time. Yet, for this to work, it is essential to secure a sales team that is dedicated solely to your product and is affordable.
For product developers with low-cost products, this makes hiring a fully functional internal sales team unrealistic. Cost-effective alternatives include hiring only a few salespeople or contracting with independent sales reps or manufacturing reps.
There are additional disadvantages to hiring many salespeople, especially with lower-priced product businesses. The return on investment to build the necessary sales infrastructure to support and coach salespeople effectively is unviable.
Those that resort to this plan, realize quickly that they have high employee turnover rates or their current salespeople are unable to live up to expectations.
Independent Sales Representatives
Another avenue is to utilize independent sales representatives (reps).
Independent sales reps work on commission, and similar to distributors, represent multiple product lines. While it is beneficial to pay an individual only when they sell your product, there are concerns.
Independent reps focus on the brands that give them the path of least resistance to make a sale. Since it’s difficult to control a sales rep’s representation of your brand, these reps can take short-cuts and make brand-damaging decisions, especially with messaging.
Outsource Sales Company
A novel method for building your portfolio of retailers and limiting your reliance on distributors is to outsource inside sales to a dedicated agency instead of a single rep.
The client team represents only your brand in sales interactions with retailers so both parties’ interests are aligned (whereas a freelance rep may focus on their other clients). Companies that outsource sales to dedicated agencies get the benefits of an internal sales team without the high costs and avoid the pitfalls of hiring independent sales agents.
Building personal relationships with your retailers and distributors
Receiving key customer feedback directly from your retailers and distributors
Having complete control of your marketing, messaging, and pricing structure
Not having to recruit, hire, and manage high-turnover sales staff
Focusing on creating amazing products while the outsourced sales team manages the selling process
Outsource sales management is easier because the agency isn’t weighing your interests against other clients’ interests
While using an outsource sales company might initially create a schism with a distributor, when a strategy is crafted in collaboration it can ultimately scale sales for both parties.
For many distributor companies, the top 5% of accounts represent over 70% percent of their sales. A product in a distributors’ portfolio is only seeing a small portion of potential buyers. This means there is a vast and untapped market available outside of a distributor’s focus. Diversifying your sales strategy and working fully with a distributor to share your plan and strategy can work to increase sales for both you and your distributor.