Catherine Langman:
Well, hello there. Catherine Langman here back with another episode of the “Productpreneur Success Podcast.” As I sit here recording this episode, it is October now. And so I really hope all of you listeners are rolling out your Christmas marketing and you’ve got plans in place for your Black Friday promos and all of that good stuff, because we are in the fourth and final quarter of the year, which is always the busiest in our e-commerce land. And of course this year, we are seeing a lot of things like Australia Post and other freight and courier companies kind of struggling a little bit under the order volume. So deliveries are a little bit slower and all of that kind of stuff. I mean, look, it’s a fabulous problem to have as a business owner. I know it’s really frustrating. It’s certainly frustrating for customers who have to wait longer to receive their goods, but it is a good problem if you are… Well, generally as e-commerce business retail volumes are demonstrating Christmas volumes now in September, October.
Catherine Langman:
So that’s a sign that e-commerce as a business model has been really growing very quickly this year, which is of course not a huge surprise given so many of us around Australia and around the world are still struggling through long lockdowns and other restrictions from good old COVID that has caused us as consumers to switch a lot of our purchasing behavior to online and buying online and having things delivered, which is great. But obviously, it isn’t the only business model out there. There is the option to wholesale as well. And I mean over the years, but certainly recently this year, I’ve been working with a lot of new businesses who have launched their brands. So they’re making their own products or they’re distributing, they’re manufacturers or distributors of their own brand. So I’m not talking here about retailers of other people’s brands. So a lot of these sorts of businesses have launched online this year. Not surprising.
Catherine Langman:
But I do hear a lot of people say, and this has been common on over the years, there’s just more and more these days that are people saying they want to retail their products on their own website because the profit margin is higher. And yes, it is very true that you can definitely charge a higher price and you should be charging a higher price when you’re selling products direct to consumers as opposed to wholesale. So by comparison, wholesale prices are often around about half your recommended retail price whilst your cost of goods is still the same. So why would you choose to wholesale versus retail? So we’re going to talk about that a little bit, wholesale or retail or both and how you should choose or how you can choose the best business model as a brand owner or distributor.
Catherine Langman:
And so first before we kind of dive into some suggestions of how you would figure this out for your own situation, I want to just quickly list off a few pros and cons for e-commerce retail versus wholesale sales model. And so when we’re talking about e-commerce sales, we’re talking about selling your brand of products direct to your own consumers online. And so the pros, of course, one of which we just mentioned is, the profit margin is going to be higher. But there’s a couple of other pros that you want to bear in mind here at number one, which I think a lot of people may discount a little bit, is that you get to control the message. You have control over the way that you communicate your brand to your consumers, your audience. So you can control the way you might build up the, really it’s about building that audience and the message that you might share with that audience.
Catherine Langman:
So what kind of conversations do you have? What kind of tone of voice does your brand have? How do you present your brand? Also how do you educate your consumers? I know with my last business being a modern cloth nappy brand, we needed to do a whole lot of education because it was the sort of product that back then, people didn’t really know what it was or how to use it and all of that kind of stuff. So controlling the message is quite an important one, I think. And that is a great pro when it is your selling on your own branded website to your own customers. And the other pro, of course, is that e-commerce customers pay front. That’s not always the case with wholesale. So that’s worth bearing in mind as well. There’s already a big enough impact to your bank account when you have to pay for the goods upfront and make sure that you have inventory to sell. So obviously the sooner you can get paid for that, the better.
Catherine Langman:
There are a couple of cons though, to the e-commerce business model that you might want to consider as well. So number one, you obviously have to master online marketing. And I think there’s still, look, I don’t think any of us go into an e-commerce business thinking that it’s going to be really easy and I’m sure if we really think it through, we don’t actually believe that putting up a website means that customers are going to find you straight away and all of a sudden you’re going to be selling a lot of, of product. I don’t think we logically think that, but then the reality of actually needing to learn how to design a website that’s actually going to convert and learn how to drive traffic and learn how to acquire customers and learn how to get those customers coming back again and again, the reality of that is that it is a lot of work and it’s kind of a constant thing. You can’t just do it once and it’s there forever. You do need to have some ongoing systems for marketing, if you are going to rely on an e-commerce business model.
Catherine Langman:
And then the other thing that I think is a little bit of a con for the e-commerce business model, this you may or may not agree with me here, but typically with e-commerce, you’re going to have a lot more much smaller orders versus a wholesale business model. So with wholesale, you typical have a fewer number of customers, but they’re going to order a lot more product in one hit. So you have fewer buyers that you have to deal with and, honestly, fulfilling an order for $5,000 versus $50 is actually not that different. So there’s that to consider, but also when you have a lot of smaller orders, then there’s a lot more customer service there as well.
Catherine Langman:
And especially right now I think a lot of customers are contacting stores that they’ve bought from and inquiring, “Where is my order? I’m trying to track it. And it’s saying it hasn’t left the warehouse” and it’s got nothing to do with you guys trying to fulfill your orders quickly. It’s just the volume of product in the postage system, postal system at the moment is crazy. And yeah, so there’s that side of things as well that you need to consider. And then the pros and cons of the wholesale business model. So obviously the con, the main negative that most people think about is that the margins are lower. The profit margins are lower. So where you might be able to retail a product for $50, you might be wholesaling it for $25. So that can all of a sudden mean that you are not making, you have to sell twice as much to make the same profit. So that feels like a negative and it makes you feel like why would I bother if I can sell something for twice as much.
Catherine Langman:
The other cons or negatives that you want to consider is the flip side of having your own branded website and selling to your own customers, you lose control over that messaging a bit. Obviously as a brand, you do want to be doing your own kind of brand awareness type marketing. So you are still working on building up that kind of brand awareness and having that kind of education process and engagement with an audience. But by and large, if you are a wholesale brand, you are not really doing much of that. And you have to rely on your stockists, your retailers to do that for you.
Catherine Langman:
And at the end of the day, they’re not going to focus purely on your brand. Retailers are selling a lot of different brands and that’s part of the appeal of a retail store for a customer. They can go into that retail store and get a lot of different things in one place. And it’s a much easier way for consumers, I guess, to just get everything that they need in one place. So, obviously a retailer is not going to focus just on your brand. They’re not going to be as good at educating customers about your products or your brand if you do require a bit of an education process like I did in my business. And so you are just one of many is I guess what I’m saying here. So you do kind of lose control of that a little bit.
Catherine Langman:
And then of course the other thing, many retailers or your stockists, they’re going to want to have terms. So as in, they would, they’re going to want to be able to order now and receive the goods and pay say in 14 days or 30 days, or in the case of many really large businesses, they’ll want much longer payment terms. And so for the brand, you really need to have some pretty deep pockets there to be able to fund making, manufacturing, or getting all of the inventory in and then waiting to be paid for it basically. So that can be really tough, especially if you are a new brand. So all of that might make you think, “Why earth would I wholesale?” But there are some good reasons to do it still.
Catherine Langman:
So number one, as I kind of hinted earlier the volume orders. So you might have fewer customers who are wholesale customers, but they’re going to be ordering in much bigger volumes. And that is really the requirement in order to have the discount. So if they’re going to have that wholesale price, which is half your retail price, then they need to make that worth your while by ordering a fair bit at once. So because you have fewer customers, you’re going to have much simpler fulfillment process. So that can be enticing as well. Especially if you take out all of that customer service side of things, all of the little customers who spend $50 each or less wanting to know where their order is or whatever other common customer service questions that you might get. So it’s simpler on that side of things and then rather than needing to drive, learn all of the digital marketing strategies to drive all of the traffic and sales, you kind of have that built-in customer base or that built-in market because it’s your retailers who have to do that marketing work to get customers in the door.
Catherine Langman:
So that certainly simplifies the marketing side of things. Again, it doesn’t mean you shouldn’t be doing any marketing because at the end of the day if you’re not doing any marketing, your brand will remain the best kept secret. And then you are actually unlikely to get any wholesale stockists in the first place, because they will think, “Who on earth is this person? I’ve never heard of them before. Surely customers won’t want to buy this if I’ve not heard of them.” So it doesn’t completely take the onus off you to do some marketing, but it certainly simplifies that to an extent. And it also, I like to think of it, I guess, as extra advertising for your brand, because the minute you are sitting on the shelves of other retailers, whether they’re digital shelves for online stores or physical brick and mortar shop shelves, it is kind of advertising for your brand. So that’s a nice way to look at it. So pros and cons there for both.
Catherine Langman:
Now you might be reading between the line lines or listening between the lines here and thinking that maybe I might be suggesting you do both. And nine times out of 10, I do suggest that you do both because there are pros and cons to both. If you can get some much bigger volume orders, and yes, you might need to wait to pay for them. Although you can certainly have terms and conditions that require upfront payment. Absolutely, you can do that. But if you are able to get volume orders, as well as having your online sales, then oftentimes you can get your manufacturing prices cheaper because you can produce in much larger volumes as well. And then obviously, like I mentioned, having your products and your brand in other retailers, it is great brand awareness. It’s great advertising for your brand.
Catherine Langman:
Generally, what I do find is that brands that can and do sell wholesale and e-commerce typically do better overall than the brands that do one or the other. And it’s like the sum of the both is worth more than the individual channels. I’ve probably completely bastardized that phrase there, but it’s like the more you promote yourself online as a brand, the more customers want you. And therefore the more they’re going to go into their favorite retailers and ask for it and kind of vice versa as well. So it is beneficial to do both, but it’s not always the way it works. So let’s have a think about the way your customers might typically buy your type of product. Now in the past, this was a little bit easier to answer. Of course, COVID has certainly induced many consumers to buy stuff online that they never used to buy online before. So this might be a little bit of a gray area. But in the past, let me give you a couple of examples.
Catherine Langman:
So in the past we had a student in our courses and coaching programs who, so the brand name was Two-winged fruit, they made handmade soaps and other kind of handmade skincare. So soaps, moisturizers, that sort of stuff, but they weren’t your high end skincare products. It was more like, soap and hand cream and lip, not lip gloss. What do you call it? Lip balm. So fairly low ticket product items. And at the end of the day, it’s pretty hard to entice a customer who, to buy something that’s say seven to $10 online, like a bar of soap and then pay shipping on top of that. So more commonly those kind of products are going to be bought at grocery stores, or, excuse me, grocery stores or other similar sorts of places where you might typically buy those sorts of products.
Catherine Langman:
So of course these days many of us are buying things online that we might typically buy at the supermarket. But again, oftentimes we are going to be reverting to that sort of a purchase habit. There’s a couple of caveats to that, that you might have a really, really premium tea product, for instance. I’m picking on tea because I just bought a beautiful Chai tea from a brand in Melbourne. And I’ve sort of resisted doing this for ages because I just want to be able to buy my tea in the supermarket. I’m lazy. And that’s just easier for me. That way I’m already at the supermarket when I need to do grocery shopping and I can just stock up when I need it. Whereas if I buy tea online and, “What, if I don’t order it in time and I run out?” I’m an avid tea drinker. It’s a disaster if I run out of tea.
Catherine Langman:
Anyway, this particular brand it’s Calmer tea, I think it’s. I haven’t got it in front of me. It is, they now offer a subscription. So I’ve sat down and I’ve worked out, “Okay, how many cups of tea do I have in a week or a month? How many canister of tea am I going to go through in a month?” And then I’ve selected to have it as a subscription. So that’s actually worked out quite nicely for myself. But typically if you are going to sell a product online, you need to be able to ensure that you’re going to get more than one order from as many customers as you can. For e-commerce as a business model to be profitable, you definitely need to be able to get a repeat order by at least kind of 25 to 30% of your customer base. Some of you might think, “Oh my, product’s definitely just a one time purchase thing.”
Catherine Langman:
But just consider that though, because even things like kids, sunglasses, for instance. You might think, “Of course, my kid only needs one pair of kids sunglasses,” but in actual fact, oftentimes parents end up buying multiples because their kid gets bigger and they need a bigger size or a new design comes out in different colorways or a different shape, or they have siblings and they need another pair that way. So oftentimes there are ways that you can get a second order from a lot of customers even with products that you might think are a one time only purchase. On the flip side, we’ve had a client in the past who sells a very specific kind of baby carrier, baby sling carrier. And it was made out of like wetsuit sort of fabric. So it was designed to be used in the water, like at the beach. And that’s really going to be something that you’d buy once. So in my opinion, yes, you would still want to try and sell that online. But by and large, that’s going to be a wholesale product.
Catherine Langman:
It’s going to be better suited to a wholesale product because that’s going to be the way that you can get the repeat orders. So where do customers typically buy your product? You definitely need to give that some thought, and then how can you ensure that you are enabling yourself to get multiple purchases from each customer or from as many customers as possible? So this is definitely where one, combining wholesale and retail can really pay dividends because if you are doing the online sales and the online marketing, you’re helping to really build the brand, you’re helping to really build demand. You might get people to actually trial the product. You start to collect some great testimonials and customer reviews and all of that good stuff. That’s going to help you get into retailers. It also helps you to control a lot of the brand messaging and education and all of that good stuff that we were already talking about.
Catherine Langman:
But then of course, if you are really definitely going to be a one time only purchase, then obviously you want to really focus on building up that wholesale side of the business as well. Whereas, if you are something that you can sell online on your own online store multiple times to the same customer, so products that might fit that definition would be things like skincare or makeup or clothing or tea, coffee, all of that sort of stuff. Then, you definitely want to try as much as you can to get more of those sales online, or at least kind of 50-50, because you’re going to be able to pat out your profit margins with the online sales. That said, though, you can still open up some really great growth markets by considering adding wholesale into the mix as well.
Catherine Langman:
So one example would be selling, for those brands selling supplements or vitamin supplements, that sort of thing, health supplements. That’s not actually an easy product to do the marketing for online. It’s a great product to sell online because it’s something that’s going to be a repeat order. Obviously you use it up and you finish the bottle and then you need another one. So it’s a great option for selling online, but it’s actually not all that easy to market online in the beginning when you don’t have things like customer testimonials, because there are some restrictions about how you can promote and market things like health supplements. It’s not to say you can’t, you absolutely can. There’s some brands out there that are absolutely killing it. Like Mister Jones Health supplements, for instance, so absolutely killing it with their e-commerce sales. So it’s definitely possible.
Catherine Langman:
But if you can also sell, for example, into pharmacies and chemists, that is an enormous market that you can tap into of people who are already going into a store to buy that sort of a product. So, definitely don’t discount doing both, even if your product is well suited to an e-commerce business model. So what else can we go through here in terms of choosing wholesale or e-commerce or combining the two? So another reason that I really like wholesale as a business model or as a sales channel to add to your business, is that it can help you to gain credibility. So if I refer back to Two-winged fruit, which was that soap and skincare, handmade soaps, and organic skincare, all of that kind of stuff. The sort of stuff that you’d find, hand cream on your desk or a pump soap at your bathroom sink at kind of products. And they were all organic and Palm oil free from memory.
Catherine Langman:
But, as a really new brand, people didn’t really know who they were or necessarily trust that they were going to be great products or do what they say on the packet as the saying goes. But what they were able to do… So that can be quite slow going to try and build an audience online, and you do need to be able to invest money into building that audience and doing all of that marketing and acquiring the customers. So to kind of cut that process short of becoming a trusted and known brand, it can be really helpful to get into some bigger retailers. And so for that particular brand, being a Palm oil free brand, they were able to get into, there was a really big organic retailer and golly, gosh, I’ve bought from them before and I cannot for the life of me…
Catherine Langman:
I’m just trying to Google now. I cannot for the life of me remember what their name is which is ridiculous. It’s not Nourished Life. Ah, terrible. Anyway, doesn’t matter. There’s a particular retailer online that, and they have big physical shops. They’re all around Australia. And few years ago, they went Palm oil free. So every single product in their retail store had to be Palm oil free. And so for this Two-Winged Fruit brand, she was able to get stocked into this particular retail chain and it added huge credibility to her brand, which was new and that really helped customers to trust it and buy it online as well. So gaining credibility is a great side effect of getting into some big or well known retailers in whatever niche or market that you sell into. You do need to be choosy about those retailers though. So obviously for Two-Winged Fruit, they were a Palm oil free brand, and that was really baked into their brand. They were very passionate about that from an environmental perspective and a animal rights perspective and all of that sort of stuff.
Catherine Langman:
So that was really crucial for them to be able to choose retailers who supported and actively supported that mission as well. Another example would be one of current clients in our coaching program has a beautiful range of, they’re kind of like Tupperware. I’m just not thinking of my words today. Beautiful range of very stylish Tupperware type products. And so really, kind of high end. So this is not the sort of thing that you would sell in a discount type shop. So, for them, it’s going to be about choosing retailers. They’re probably not going to go for like your warehouse type homewares store. Styleware is the brand name here. So they’re not going to go for your warehouse type store because that’s not going to be helping their brand. It’s going to be hindering their brand. Styleware is a premium stylish homewares or daycare type product.
Catherine Langman:
So, you really need to be thoughtful and careful out which retailers you go into so that it does provide credibility and it doesn’t hurt the brand that you’re trying to create. So just a word of warning there. Another way that you can try and work out whether your product or brand is suited to e-commerce versus wholesale is to think about and consider your average order value. Now, there are ways that you can manipulate that average order value for an e-commerce business, but if you have an average order value that is well under $50, then you’re going to really struggle to do well profitably in an e-commerce only business model. Now, if you do sell really inexpensive products, obviously soap is an inexpensive product, you need to be able to increase that average order value by doing things like adding volume discounts and value packs or bundles, things that will bump up that average order value to over $50.
Catherine Langman:
And the reason I’ve picked that number is because when you are growing an e-commerce brand, you need to be able to spend money on advertising to drive traffic and sales in your online store. And it is very difficult to do that profitably at a really customer acquisition price. So you need to have enough profit in that transaction value in order to fund that marketing online. So if they are really low cost products, you might be better suited to going into some big retail stores, whether it’s a grocery channel or pharmacy or whatever it is that’s going to suit your product. So just have a think about that average order value. And like I said, you can manipulate that for e-commerce, but you do need to make sure that you have a profitable average order value to pursue an e-commerce business model. And then of course, on the flip side with wholesale, yes, the profit margin’s going to be lower, but obviously with the volume orders there, then that is going to make that sort of worthwhile.
Catherine Langman:
Now, as I hinted at the start, you definitely do not have to choose one or the other. You can do both. And I actually think that you should if you can, because you will do better overall. And for most brands, I believe this is the right model. It can be hard to find retailers to stock you in every corner of the country or the world. So by selling online on your own website, you can definitely get to customers who can’t buy stuff in their local store. And then obviously on the flip side, by doing some really consistent, good quality online marketing, you are actually going to increase custom customer demand and that is going to increase your wholesale stockists ability to sell through the product. So doing both actually helps both if that makes sense.
Catherine Langman:
But of course, if you are going to do both, you don’t want to be one of those really asshole type brand people to deal with that undercuting stockists or discounting so much that it makes it very difficult for stockists to do well. Excuse my French. The key to managing both well is to treat your stockists well. So do not undercut them with aggressive discount promotions or making lots of your range only available to customers on your own website. That’s not a nice way to act, and you’re just going to hurt yourself by doing it that way. I’ve had so many clients who are e-commerce, retail, boutiques, who have suffered at the hands of brands who market like that. And it’s just awful when you leave stockists with a whole heap of product that they can’t sell through because they bought it at full price and now, you’re selling it to customers at half price, which is essentially your wholesale cost. So don’t be an ass, look after your stockists.
Catherine Langman:
It is not hard to do marketing that will help you sell online and help your stockists sell as well. It’s not hard. Yes, it means you have to be a little bit more creative perhaps with the campaigns and the promotions that you run. You need to be able to offer those up to your stockists as well as your online customers. And it’s not hard. You just definitely need to be considerate and also a little bit creative there. So that’s kind of what I’ve got for you today. I hope you have enjoyed that. I hope it’s maybe made you think a little bit. I’ve got a load of resources available on my blog and also training courses and stuff like that for wholesale, as well as all of our e-commerce and digital marketing type trainings.
Catherine Langman:
So if you need any help with any of that kind of stuff, just go and poke around over on my website, CatherineLangman.com or also on our training academy website. So ProductpreneurAcademy.com. You’ll find some resources on there as well if you want something a little bit more in depth and step by step. But I hope you’ve enjoyed that episode. Let me know in our Rockstar Productpreneur Facebook group if have any questions or thoughts or suggestions that you want to add to that. Otherwise, have a fantastic week and I look forward to being back with you again on the podcast next week. Bye for now.