Once inventors have a product ready to sell, they need to decide how to market the product. They might choose to sell the product themselves, which generates the most profit per sale, but the main drawback is that sales might get off to a slow start or never get started at all. Another option is to land a marketing partner-another company already selling into the target market-which has the potential for very fast sales growth, but the main drawback is they will need to give 20 to 25% of their sales volume to the marketing partner to cover sales and marketing costs. At first glance the 20 to 25% seems high, but in reality most consumer products companies spend approximately 20% to cover sales and marketing costs. Selling through a marketing partner may not be viable if you have small margins, but it is often the best course for fast sales growth for inventors with high margin products, where the product’s wholesale sales price is at least twice the product’s manufacturing costs. This article covers how to find a strong marketing partner to sell your product.
There are several principles to follow when selecting a partner. The partner needs to be selling to the right market and they also need to be able to generate significant revenue per year with your concept. The partner should also have a strong reputation and have had strong sales growth. But the critical point is to work with companies where the inventor can find someone inside the company who is willing to push management to carry your product. Ideally this person is a regional manager or marketing person with enough clout to move the project forward. The marketing partner can be chosen from a wide range of businesses: a manufacturing company that makes other products it sells, a distributor who sells to the same target market, a manufacturer’s representative firm that plays an important role in a particular market, a large end user of an industrial product, or even a major retailer looking to sign a private label agreement for its stores.
Potential Marketing Partners
Typically when people think of a marketing partner, they are thinking of bigger companies that have large marketing and sales staff. Those companies can be good partners, but they are also partners that can take a long time to sell. What you need from a marketing partner is a commitment to take the product for a period of time, which means a marketing partner is a very broad term for inventors. For example, a retailer is a partner if it agrees to buy a fixed number of units for three years in return for an additional ten percent discount and an exclusive sales agreement.
Companies with Branded Offerings
Products and services are branded when they are sold under a name the company promotes. The Geek Squad sells branded computer repair services and the Crank Brothers sell branded bike repair products to bike shops. Companies with branded products typically sell through established distribution channels, compete with many other companies, and have a somewhat steady stream of business. These companies will be interested in marketing inventor products when those deals improve their competitive situation.
Distributors
Distributors often look for exclusive deals on “hot” products or services that have strong customer demand since it boosts all of their products’ sales.
Retailers
They already buy lots of private label products, which are typically nonexclusive agreements for a product with the retailers name on it. A private label agreement is one option to an inventor when the retailer makes a three or four year commitment.
Companies that Market Others’ Products
Many markets have one or two companies that market products from overseas manufacturers or small US companies. They also make strong marketing partners.
Finding Potential Partners
Finding partners starts with the target customer. Anyone who is active with your target customer is a potential partner. Make a list of all the companies and organizations that interact with your targeted customers. The best way to find these companies is by using directories that are posted on web sites for trade magazines and associations and from exhibitors lists from industry trade shows.
Trade magazines typically have directories where you can often get a list of manufacturers, manufactures’ representatives and distributors. As an example, I learned rock salt lamps are popular in Pakistan, both for their soft ambient mood lighting and because the rock salt lamp releases ions when the light is on that have some medicinal value. To look into potential partners I did an internet search for lighting retailer trade magazines and at the top of the list was the site for Home Lighting and Accessories, the trade magazine for lighting retailers. The site contained a directory for manufacturers, manufacturing representatives, and some distributors. I also subscribed to the magazine (most trade magazines are available at no charge) so I could keep up with the industry. You can also find trade magazines in Gale’s Source of Publications and Broadcast Media, which is available in larger libraries.
Associations can also be located using the internet in exactly the same way as trade magazines. For the associations related to lighting I found several sources but the best one was the National Home Furnishings Association. The association’s directory for products contained a list of many manufacturers and distributors and a list of auxiliary members had the names of manufacturers’ representatives. Gale’s Book of Associations, also available at libraries, contains the most comprehensive list of associations that I’ve run across.
Trade shows are another good source for finding potential partners because most key market suppliers will exhibit at a trade show. Most shows have directories that list all the exhibitors, what their products are and contact information for each company. Your best bet is to just call the trade show sales office and ask for a copy of last year’s show directory. You can find the right trade shows contacts in trade magazines and at http://www.tsnn.com, which is a comprehensive web site directory of both big and small trade shows.
When Marketers are Receptive to a Deal
Marketing partners take on product from an inventor when it helps enhance their overall market presence. Inventors should research the target marketer to understand what sales approach will work best. I’ve listed a variety of reasons that might make the marketing partner be receptive to your offer.
New Market Trends
Downloading music for fees, cell phone conference calls among teenagers, backyard water ponds, and hybrid golf clubs are all new trends where some companies are winners and others losers. For inventors, especially ones that are users of the product, these trends open up opportunities because companies participating in the market don’t know for sure what the fast changing market wants, and may use an inventor’s product to better explore the market. Scrapbooking is a good example: that market went from low to no sales to five billion dollars in sales in a just a few years. Many of the new products in that market came from inventors or others who were diehard scrapbookers-they knew what the market wanted because they were one of those target customers.
Product Line Gaps
Marketers can’t afford a hole in their product line because companies avoid having multiple sources of supply, which is expensive and complicated. Having an incomplete product line causes companies to dump one marketer in favor of another marketer with a complete line to keep hassles and expenses down. Limited supply sources is even more important to service providers, since both companies and consumers tend to prefer just one supplier. A potential marketer will be receptive from a proposal from an inventor who fills in a product line. Filling a product gaps causes the marketer to get all of his products or services into more outlets, thereby increasing sales across the board.
Improved Margins
Distributors and retailers might sell a product at a 30 to 40% margin. If the distributor commits to a three year deal for an exclusive selling arrangement he might receive an additional five to seven percent margin, either as a discount or as a share of the profits. That’s a good deal for distributor.
Increased Revenue
Certain functions are critical for a marketer to continue, such as newsletters, service support, or sponsorships of events, to keep connected to their customers. But often those activities barely break even in profitability for their companies, and the marketer is looking for ways to create new revenue streams to help cover all of their fixed marketing costs. Small companies, who have trouble creating enough revenue to afford an effective marketing program, might add an inventor’s product to build up their revenue stream to help offset these fixed marketing costs.
Change in Top Personnel
New management is always looking to make an impact on their employees and the market. They will go out of their way to look at new ideas and concepts from inventor/entrepreneurs in the hope that they might have an idea that will sell. This situation is especially advantageous for inventors because they can often get right to the top management people in the company.
Unable to Fund Their Own Introduction
Sometimes the best marketers to approach are mid to small size companies that lack the resources to introduce a product on its own. Look for companies in the market that feature mostly accessories or peripheral equipment or services for companies and can’t afford a major introduction. With the work you’ve done developing your idea, and the other resources you bring with you, you and the marketer can succeed together.
Choosing the Best Marketing Partner
- Determine your investment required to manufacturer the product.
- Determine if the marketer is capable of delivering annual sales levels 15 to 20 times your investment, otherwise you won’t be able to recoup your money.
- The project should represent a 10 to 25% increase in sales to the marketer. If the project is less than 10% it will be hard to generate excitement in the marketer as the project just won’t have enough impact. A 10 to 25% increase will make a significant difference to both the company sales totals and bottom line.
- Potential targets have several of the characteristics that make marketers receptive to a deal.
Types of Deals for Marketers
Inventors’ deals with manufacturers can be set up in a number of ways. I’ve listed an array of deal structures you can suggest to marketers to find the one that suits them best.
Firm Purchase Commitment
The simplest inventor deal is a two to three year purchase commitment that’s large enough to help the inventor sell all the products it can afford to make. Retailers are a good example of a company that will do this, as well as distributors or integrators, who buy your product and then include it in as a component of their own product. An exhaust system manufacturer, for example, is an integrator who might buy large volumes of an innovative component from an inventor that it will incorporate into its final product.
Firm Purchase Agreements in Return for Considerations
The agreement might call for exclusive rights nationally or in a territory for either a short time or it could be for the duration of the agreement. Rather than a total exclusive agreement, the consideration might be that certain features or applications are exclusive to the marketing partner. For example a chain of skateboard shops might have exclusive rights to a new style of polyurethane wheels on a skateboard, but not exclusive rights to the entire skateboard line. Agreements also can be entered with price concessions in additional other considerations. In return for a firm long term agreement you might have to give up both, and might also need to offer protected pricing, which you can only raise under certain restricted circumstances.
Private Label Agreements
A private label agreement is really no different than the first two options, except that rather than branding your product or service with your name, it is instead branded with the marketer’s company name. For example you might sell your skateboard wheels with the name of the distributor or retailer on the box. This is the deal that most often works if you are selling to a marketing company that sells products from overseas and other small manufacturers.
The deals you might suggest here can typically be handled by a purchase order or straight buy and sell agreement.
