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One product we make is an accessory that is complimentary to a device someone else makes, and until recently, their device was pretty much just sold overseas in their own area. They themselves make their own accessory to sell with the device as well. But people asked us if we could do better, so I came up with something. Long story short, it not only works better than there's, but is one third the cost. Even after paying to ship it overseas to customers, it is still way cheaper to the customer. At first, one of the guy's from the company that makes the device tried to bad-wrap us and claimed ours would not work right. The people who bought it quickly put an end to that by saying he was wrong, that it worked great. Obviously this accessory was a cash cow for them, as it had probably about a 10x cost mark up on the one they sell. So now I get an email from the same guy asking if I will start selling them batches of 10 at a time or so. We have not been doing wholesale with our products, mainly because the market we sell to is very niche, and we are never going to be selling thousands of these things or anything. Plus, we are not really setup to be doing that level of production. But this particular model has surprised me, as a good chunk of our sales have come directly from that one model.
My dilemma is... Do I sell to this guy or don't I. I personally would prefer not to wholesale. But my worry is that if I don't, he'll just copy ours and make his own, and I'll lose all those sales. Also, he has not even mentioned anything about a discount, so I'm wondering how he plans on making anything from ours. If he plans on selling it for a lot more than we do, I don't think that's a good thing.
Do I sell to this guy or don't I
It's difficult for me to answer this without specifics, but I'll give'er a go:
Really important questions: How many customers do you two share? Is every accessory sale you make because he got a widget sale? Can you sell accessories to people who don't buy the widget from him? or at all? Does every widget sale he makes necessitate an accessory sale, whether it be by you or him? Do some people buy multiple accessories? Or is it always one accessory for one widget?
I'd begin by having a some long conversations with this gentleman. I'd want it to be VERY clear that he is distributing a product made by you and NOT MAKING THE PRODUCT HIMSELF...as in, make sure he is not rebranding it as his own. If you can secure that agreement, who cares what he sets his price as...because he won't be able to get away with a huge mark-up for long if you hold your price steady. All it takes is one vocal customer writing about how they got ripped off after they found "this other site, not the guy who sells the widget, at www.widgetaccessory.com makes the accessory he sold me and sells it for $X cheaper!"...and suddenly he is right back where he started, being outsold by you. Heck, you might even get a great back-link from his product page just so he can show how his price is the same as yours. Essentially, I am advocating a Minimum Advertised Price Policy (MAPP Agreement). It protects your margins and helps him close sales by creating parity. With a secure MAPP, you gain greater access to his customers and he gains a new product offering and a shot at making SOME money off the accessory sale as opposed to NONE. Win, win situation i.e your sales volume increases and he doesn't lose out on the sale entirely.
If you can get a MAPP, I'd say it's safe to sell wholesale to him. This is particularly true if you believe you would simply be gaining an additional 10 sales per month as opposed to just dropping your profit margin on 10 of the sales you would have gotten anyway.
Another thing I would look into is maybe ditributing the main widget for which you make the accessory. If you can work out some sort of reciprocal deal where you can both sell the widget and accessory, you may be able to increase sales and profits for both of you due to increased web presence and exposure.
Edit: I work for a wholesaler, hence my advocacy for utilizing a wholesaler distribution scheme. :o)
[edited by: HugeNerd at 10:33 pm (utc) on June 10, 2009]
Years ago I read something in a book about home businesses based on crafts. This person addressed the wholesale question by asking would you rather make more on a few things or less on a lot of things? Considering I am making those things, I choose the former.