Three Innovative Funding Sources for Creative Brands

Innovative Funding Sources for Creative Brands

Funding Options for Creative Brands

 

Raise your hand if you need dollah, dollah bills to invest in your business?

 

Yea, I thought so.

 

One of the advantages of engaging in daily conversations with makers + products designers is that I’m able to keep a finger firmly on the pulse of the daily struggles that we all face as creative entrepreneurs. If there’s one struggle that I hear more often than any other, it’s that we have a long to-do list of things we need: graphic design, product photography, professionally executed packaging, well-designed websites, trade show appearances, business classes, and more. And we typically have less cash in the bank than we need to tackle that to-do list. I feel you, friend.

 

For too long, securing funding for your business growth meant sitting through snooze-fest classes for drafting elaborate business plans, schmoozing with your local banker, laying your personal finances bare, and spending weeks-to-months jumping through hoops and praying for a loan. The times are a’changing, and I’m thrilled to say that those days are officially behind us. The maker revival and entrepreneurial renaissance have ushered in a variety of non-traditional funding options, and they’ve arrived none too soon.

 

Deciding to take on debt for your business is a deeply personal choice, and I’m keenly aware that there’s no one-size-fits-all solution. But the reality is that we can’t DIY everything about our brand while simultaneously steering its strategic path. While I’m certain that you look dashing in a leotard and red patent leather boots, you’re not Wonder Woman and neither am I. We’re not Jills-of-all-trades, and there are a finite number of hours in the day. Which means we need help. And that help usually has a price tag attached.

 

At some point, each of us will eventually need to hire staff, delegate specific tasks to the professionals, and invest in our business. Ideally, you have a trust fund from a wealthy grandmother or a cushy day job that’s enabled you to stockpile money for a few years as you transition to full-time entrepreneurship. Wait… no? Then we’ll just have to get a wee bit more creative. Here’s a quick snapshot of three innovative funding sources you can tag in to help grow your brand!

 

KIVA ZIP

 

You might be familiar with Kiva as the microlending agency that serves people in developing countries around the world. And while that’s the backstory of this non-profit organization, there’s been a significant evolution in Kiva’s model of which you might not be aware. Since 2005, Kiva has been on a mission to alleviate poverty through microloans. A farmer in Peru or a shopkeeper in Uganda could apply for a loan to improve their home, send a child to school, or grow their business. Their story is profiled on the Kiva site and peeps like you and I can each pitch in $25 until the loan is fully funded. Over time, the recipient pays the loan back, and the funders receive the initial amount without interest.

 

A few years ago, Kiva launched a separate “Zip” crowdfunding program which is designed to support American entrepreneurs. Now businesses like yours and mine can apply to receive loans between $25-$10,000. The process begins with a simple online application which collects information about you, your business, and your plans for the moolah.

 

Once approved, Kiva asks you to make a loan of at least $25 to another entrepreneur. You then appeal to your own community (private fundraising), asking them to fund a portion of the loan, $25 at a time. You have 15 days to secure a certain percentage of the loan through your own channels. Once you’ve crossed that threshold, Kiva posts the loan on its larger platform (public fundraising), effectively opening it up worldwide to lenders. You then have 30 days on the public platform in which to raise the balance.

 

PROS
Kiva’s process often taken 30-60 days from initial application to eventual disbursement. But if you move quickly through that initial fundraising stage, then it’s often quicker than a traditional bank loan. And funds are typically available 48 hours after successfully funding the loan, so the cash is in your hot little hands pretty quickly.

 

Did I mention that the loans are at 0% interest? My hand to God’s… I would never deceive you! Interest-free loans are a thing of rare wonder and beauty, but Kiva Zip makes that happen. And there are no hidden fees. They leverage a network of millions of everyday lenders and corporate sponsors to offset program expenses. A $10,000 loan paid back over 36 months would carry a payment of just $278 a month… pretty damn reasonable.

 

The loans aren’t based on your personal credit history, and the debt doesn’t appear on your personal credit record. Kiva does use, however, publicly-available information about you and your business to verify your identity and determine creditworthiness.

 

CONS
You’re going to have to gather the chutzpah to ask people you know for money. There’s absolutely no shame in that game, but some people get squeamish about money chats. Heads up: as an entrepreneur, you have a lot of “money chats” ahead of you, so the sooner you can overcome this inner hurdle, the better off you’ll be. Thankfully, this is low-pressure asking: simply post on social media that you’re fundraising and link to your private page at Kiva. No need to arm wrestle your peeps into submission. And Kiva has a full suite of email template and helpful resources to help you fundraise more quickly and with ease.

 

Loans which aren’t fully funded within the time allocation are moot. Your backers won’t be charged, and you won’t be collecting a check, so it’s a wash in the end. Partial loan disbursements aren’t possible, so you’ll need to raise the full amount of your goal to enjoy any benefit from the loan.

 

You won’t qualify for a loan if you’re currently in foreclosure, bankruptcy, or the subject of any liens. While Kiva doesn’t check your personal credit record, those precarious situations are searchable through public records and Kiva can’t extend a loan to you if they apply.

 

EXAMPLES
There are handfuls of Lucky Break clients who have successfully raised between $5,000-10,000 through the Kiva Zip program, including Zandra Beauty, Todos Organics, Outlaw Soaps, and Etta + Billie.

 

Have more questions? Kiva has answers.

 

PAYPAL WORKING CAPITAL

 

PayPal has developed one of the most accessible funding platforms on the planet. Their “Working Capital” service was launched in 2013, providing lightning-fast small business loans with heaps of flexibility. Here’s how it works…

 

You complete a quick online application and PayPal makes a decision in 90-seconds-or-less. Your borrowing power is tied to the sales from your business which are routed through PayPal as a payment processor, so the lender has instant access to a snapshot of your company’s revenue history. An offer is made, and you can elect to tap all or a specific portion of the available loan amount. Fees are charged based on the speed at which you choose to repay the loan… the quicker you pay it back, the lower the fees.

 

For instance: Let’s say that your PayPal sales over the last 12 months totaled $150,000. You would easily qualify for a $20,000 loan. You could earmark 30% of your daily sales to loan repayment and pay just $1,221 over the life of the loan. If you choose to set aside 20% of your daily sales to loan payback, then fees jump to $1,907. A 10% daily payback rate jacks those fees up to $4,393. The total payback amount for that $20,000 loan would be between $21,221 and $24,393.

 

You can tap as much as 18% of the total amount of sales you’ve processed through PayPal over the last 12 months, to a maximum of $97,000. And payments are automatic, too. If you tell PayPal that you’ll pay the loan back at 10% and you make $150 in sales tomorrow, then PayPal will deduct 10% (or $15) as a loan payment. No sales tomorrow? That’s a $0 loan payment. Have a ridiculously good day with $1,000 in sales? $150 of that slides over to PayPal.

 

Assuming you made sales of $365,000 last year and you take the full $65,700 (18%) loan with a payback rate of 20% of your sales, then there would be an $8,857 fee associated with the loan. Assuming your sales were flat over the next twelve months (no growth), then that 20% payback rate works out to an approximate 13.48% annual interest rate. That’s more attractive than many credit cards, less attractive than some others. Swing by the PayPal Working Capital FAQ to get the 411 on their program.

 

PROS
Approvals are shockingly quick… by the time you can saunter into the kitchen for another cup of hot tea, the decision has been made, and a final answer is displayed on your screen. Funds are instantly available in your PayPal account and- at your request- they can transfer over to your bank account for full availability within 48 hours.

 

I appreciate that payments expand or shrink in correlation to sales. Suffering from the Summer Retail Draught? No worries… since your revenue is lower, your payments are, too. And because payments are automatic, the system is pretty seamless. Three cheers for having one less thing to think about during a busy week!

 

The loan doesn’t depend on (nor impact) your personal credit score. Many users appreciate the autonomy which surrounds this kind of lending.

 

CONS
You must be a PayPal Business or Premier member for at least three months to qualify. You also need to process at least $20,000 in sales annual (Premier account) or $15,000 annually (Business account). Anemic PayPal sales? You may qualify for several relatively comparable options (keep reading!).

 

You can only have one “loan” at a time. Borrowed $15k and now you need an additional $5 grand? You’ll need to pay that first $15k back before you can have another bite of the apple.
Is there such a thing as a borrowing process that’s too easy? If not, then PayPal has likely invented it. With loans this quick and painless, it’s easy to borrow impulsively without crunching the numbers and understanding how the setting aside of a fixed percentage of daily sales will impact your cash flow.

 

EXAMPLES
I know a good bit about this program because I’ve used it myself. Lucky Break took a $46,000 loan in June, and we’ve repaid $39,000 of that in just four months. As a user, I find the platform to be deliciously simple to understand and I appreciate that I can log in at any time for a clear explanation of current loan stats.

 

KICKSTARTER

 

Since its launch in 2009, Kickstarter has collected more than $2 billion (billion, with a b!) to fund 100,000 creative projects. The crowdfunding platform invites makers and product designers of all stripes to showcase products in development. Those projects are pitched to interested “backers” who might throw anywhere from $1-10,000 towards a single project. Brand owners create a rewards system in appreciation of the support. Those rewards range from simple social media shout-outs to early access to the products they’ve helped fund and innovative experiences reserved exclusively for backers.

 

PROS
Kickstarter is a public-facing platform, so it has the potential to spread news of your brand far and wide. This is easily the biggest benefit of the platform: the exposure brings with it significant opportunities. Campaigns sometimes go viral and are often featured in blogs, newspapers, and magazines. Unlock the secret to getting featured by Kickstarter staff, and you’re well on your way to not only raising dollars but growing an email list and attracting the attention of editors as well.

 

You can raise serious bank on Kickstarter if you play your cards right. I’ve seen campaigns raise as little as $2,500 and as much as many-hundreds-of-thousands-of-dollars.  It’s wise to think of Kickstarter along the lines of a pre-sales platform rather than a lending platform, but the amount you can raise is essentially limited only by time, your imagination, and your ability to produce all those rewards.

 

CONS
Kickstarter fundraising totals may look impressive, but the campaign totals can be deceiving. Kickstarter claims 5% of each pledge in fees, in addition to 3% and $.20 per pledge in credit card processing fees. So that’s an 8%+ haircut right off the top! You’ll also need to produce and ship those tangible rewards, and those costs add up quite quickly.

 

The platform is dense with projects and you’ll need to do lots of outreach to rally the troops. Prepare for a media blitz with proactive pitching to editors and plenty of messaging to your own community. Frequent newsletter reminders, social media blasts, and FB ads are typically needed to help projects gain traction. If you haven’t yet amassed a significant number of email subscribers or social media followers, then getting that project seen is likely an uphill battle.

 

You’ll need strong product imagery, a well-designed video, and solid storytelling chops to cut through the noise and capture attention. Many brands spend months putting together their campaigns and the best campaigns represent significant investments of strategic thought… and often dollars, too.

 

Kickstarter is an “all or nothing” platform. You’ll set a goal for the amount of money needed, and you’ll have a limited amount of time in which to raise those funds. Projects which aren’t fully funded by the deadline receive none of their pledged funding, so time is of the essence, and smart fundraising targets are a must.
Makers should be planning to either launch their brand on Kickstarter or significantly expand their current product offerings. Projects along the lines of “We need money for rent/ to hire someone/ to attend a conference” tend to go nowhere fast.

 

EXAMPLES
The projects which traditionally perform best on Kickstarter are tech gadgets, games, creative projects such as films, and problem-solving products like this multi-purpose cooler. My personal favorite Kickstart campaign of all time? Organic kid’s clothes from Lucky Break client The Smallest Tribe. Kathryn raised $10,575 in 2015!

 

NEED MORE FUNDING OPTIONS?

You’re spoilt for choice, my friend!

 

• Along the lines of PayPal’s Working Capital program, Square and Shopify have recently launched funding programs. Think: instant funding based on your sales history and automatic paybacks that flex with your gross revenue.

 

Kabbage is another option worth exploring. They provide quickly-dispersed lines of credit that range between $2,000-to $100,000. But beware: Fees range between 1.5%-12% per month, which is pretty rich for my blood!

 

Indiegogo is similar in nature to Kickstarter, with a similar pricing structure as well. The predominant difference is that Indiegogo isn’t all-or-nothing. If your campaign is at 72% of your fundraising goal on the day it expires, you still earn that 72%.

 

Have you found an innovative funding source for your business? Have a positive or negative experience to share about one of the funding source mentioned in this article? Please leave a comment and share your thoughts below… I’d love to hear them!

 

The Problem with Selling on Handmade at Amazon

AmazonHandmadeIG

The Etsy platform has long existed in a state of inherent tension:  the sellers who depend so heavily upon it are often quick to criticize it as well. Etsy was roundly celebrated as it labored to create an unprecedented market opportunity for makes and product designers, effectively launching a retail rebellion of the very best kind. From its humble beginnings as a scrappy startup way back in 2005, Etsy has evolved into a juggernaut, racking up close to $2billion in sales in 2014 and almost single-handedly launching the “maker revolution.”

 

But a series of missteps and growing pains left many sellers with a less-than-savory taste in their mouths. Etsy sellers have struggled with:

    • An ever-evolving definition of “handmade”
    • A perceived lack of commitment to protecting their intellectual property
    • A recent flood of mass-produced products from overseas
    • A corporate IPO, which introduced public shareholder interest into the mix

 

So while Etsy pioneered this space, improving market accessibility for makers and artists over the course of the last decade, the relationship has soured for many of Etsy’s most ardent supporters. Sensing a potentially lucrative opening, Amazon launched a new “Handmade at Amazon” platform designed to compete head-to-head with Etsy.  Amazon wisely put together an attractive package for Etsy sellers and entered the fray with a public launch in October of 2015.

 

For the past four months, I’ve fielded the question “Should I sell on Amazon Handmade?” on a weekly basis as my clients explore all of their distribution opportunities.  And my answer has been a firm and consistent “no” from day one.

 

The debate surrounding Handmade at Amazon continues to rage and thoughtful articles have detailed Amazon’s less-than-intuitive user interface  and the company’s penchant for using the sales data of its own sellers to drive them out of business. While that possibility is deeply troubling, Amazon fans have remained steadfast in their faith in the platform, asserting that the exploitation of sales data of the handmade contingent is speculative at this juncture. Touché.

 

From my vantage point as a business strategist for makers and product designers, there are a host of more fundamental problems with the Handmade at Amazon platform.  I urge every maker who’s striving to build a sustainable business to proceed with extreme caution.  Why?

 

Amazon is a dictatorial platform that exerts almost total control over the sales process, stripping sellers of virtually all autonomy.  And it’s hella expensive, too.

 

AMAZON IS AN EXPENSIVE PLATFORM UPON WHICH TO SELL

 

Let’s start with the money discussion, because a clear distillation of the Amazon fee structure will likely dissuade many makers from sowing deep seeds into the platform. When compared to Etsy, Amazon Handmade takes a larger bite of the apple in virtually every scenario.  A quick side-by-side comparison is revealing…

 

HANDMADE AT AMAZON

    •  No listing fees
    •  $40 Professional Selling Plan, paid monthly
    •  Transaction fee of either 12% or $.50, whichever is greater
    •  Transaction fees are applied to shipping charges as well

 

As a launch incentive for Handmade at Amazon, the $40 “Professional Selling Plan” fee is being waived through August 1, 2016.

 

ETSY

    • Listing fee of $.20 per item
    • 3.5% transaction fee
    • 3% payment processing fee
    • Transaction fees aren’t applied to shipping costs
    • No monthly fee

 

AmazonHandmade
The fee disparity will deepen when Amazon Handmade begins collecting their $40 monthly fee in the fall of 2016.
AmazonHandmade2

 

It’s worth noting, too, than Etsy releases funds immediately, while Amazon holds funds until the order ships. For makers who are shipping premade items, this point of difference is likely insignificant. But for the artists working on custom commissions, this is a critical differentiation that will impact the cash flow of the business.

 

AMAZON’S NOT AFRAID TO STRONG-ARM YOUR PRICING STRUCTURE

 

Amazon is well attuned to their power and the company isn’t timid about applying pricing pressure to those who play in its sandbox. In August of 2015, Amazon dispatched an email missive to an entrepreneur in my circle, effectively announcing that…

 

“We have identified that based on the current cost of some of your products, we are not able to sustainably offer them to our customers despite our highly efficient, high volume retail model.”

 

Mind you, the email was received after 4 successful years of selling via Amazon.  Brand managers hadn’t noted slacking sales, so the trigger for the communication is unclear. Regardless, Amazon offered the brand “suggested” new pricing which equated to a 15% reduction.  The seller was given one week to decide from among three options:

    • Accept the pricing presented, authorizing Amazon to implement it immediately.
    • Accept some of the new pricing “suggestions.” For products which weren’t accepted at the suggested price point, Amazon may elect to drop them altogether.
    • The seller could manually update the pricing themselves.  Amazon noted that if the seller was “unable to give us the costs we’ve requested,” then the products may be dropped from the platform.

 

Let that sink in for a moment: Amazon dictated the prices of an independent brand. Not the price Amazon would pay for the product, but the price they’d allow an independent retailer to charge the customer. Danger, Will Robinson!

 

 

AMAZON IS REVERED AS HOME OF THE CHEAP + READILY AVAILABLE

 

The sale of commodities forms Amazon’s very core… it’s the premise upon which the company was built and it embodies the concept for which Amazon has become famous: cheap prices, fast delivery, and access to an infinite stream of products. But that very premise is antithetical to the handmade movement.

 

Commodities are products that can easily be substituted for one another. They’re items for which a demand exists, but there’s no qualitative difference across a marketplace. For example: the scrubber sponges you grab because they’re on sale at the grocery store and the plant food you select because it’s the first one that catches your eye during a quick run to the nursery. The purchasing patterns of commodity buyers are triggered by two things: price and availability.

 

Amazon has become the largest retailer in the United States, with $89 billion (billion with a B!) in sales collected from 294 million users in 2014. And why do we patronize Amazon so faithfully? Because virtually every product under the sun is conveniently located in one centralized spot, available at our fingertips 24 hours a day at an uber-competitive price. Even better? We can have anything our hearts’ desire on our doorstep within 48 hours. As a shopper, there’s a lot to love!

 

But as a brand, the love affair is increasinly tepid. In contrast to commodities, brands create differentiated products that are highly desired by their ideal customers. Brand customers have some degree of loyalty, seeking out specific goods in the marketplace. These customers are less likely to substitute products based on price and availability.  And they’re precisely the kind of shoppers that handmade artisans need to sustain their business.

 

By pitching your wares via Amazon, you risk commoditizing your brand. And I don’t believe this is an obscure risk… in fact, I believe that makers who sell through Amazon inevitably erode brand value.  The value buyers of Amazon want things fast and cheap (which means their patience is usually in short supply) and they’ll shop next month based on price and availability (which means they’re not inclined to build loyalty to a specific brand). If another seller with a similar item sets up shop on Amazon at a lower price, then your buyers are likely to defect en masse. And if you step off of the Amazon platform, then you immediately decrease the availability of your wares and the Amazon customer isn’t likely to follow you.

 

In short: Amazon buyers likely aren’t your audience. And you likely wouldn’t want them to be. Please know that I’m not anti-Amazon! The almost predictable delivery of Amazon Prime packages to my doorstep is a sign of how often I patronize the platform. But I use it for quick + easy + cheap deliveries of my daughter’s vegan protein bars and the latest business book I want to digest. If fast + cheap + accessible ism’t the kind of customer you ultimately want to attract to your brand, then I’d think twice about crawling into bed with Amazon.

 

A few other important caveats to note: prestige products have no place on Amazon because they’re run contrary to the sales model that Amazon has so carefully constructed.  And as someone who helps makers build wholesale strategies, I can imagine few things which are less attractive to the independent shop buyer than knowing that your wares are available 24 hours a day via America’s largest discount retailer. Crawl inside the mind of a buyer for a few moments and meditate on that through their eyes.

 

AMAZON OWNS THE CUSTOMER + TRANSACTION

 

In essence, Amazon is a closed eco-system and makers are positioned as dropshippers of their own products. The progression of evolving an Amazon customer into a brand customer is a completely passive process over which Amazon sellers have no control.

 

When selling on Amazon, you…

      • Can’t include a link back to your site
      • Can’t include any promotional materials in your shipment
      • Can’t harvest the customer email address to add to your newsletter list
      • Can’t contact the customer outside the Amazon

 

In essence, the customer belongs to Amazon.  Any attempt to establish a relationship with that customer outside of Amazon is sufficient grounds for termination of your Amazon selling privileges.

 

Etsy policies are friendlier to the seller, at least in comparison to Amazon. While Etsy discourages “fee avoidance”, the platform doesn’t forbid you from linking directly to a website that lives outside of Etsy. And you’re free to tuck anything you like into the actual order.

 

the problem with selling on handmade at amazon

 

From Etsy’s Seller Policies page>> “You may receive a buyer’s email address or other information as a result of entering into a transaction with that buyer. This information may only be used for Etsy-related communications or for Etsy-facilitated transactions. You may not use this information for unsolicited commercial messages or unauthorized transactions. Without the buyer’s explicit consent, you may not add any Etsy member to your email or physical mailing list or store or misuse any payment information.”

 

In contrast, Amazon maintains a restrictive set of parameters surrounding the buyers/seller interaction >> “Any attempt to circumvent the established Amazon sales process or to divert Amazon users to another website or sales process is prohibited. Specifically, any advertisements, marketing messages (special offers) or “calls to action” that lead, prompt, or encourage Amazon users to leave the Amazon website are prohibited. Prohibited activities include the following:
•  The use of email intended to divert customers away from the Amazon sales process.
•  The inclusion of hyperlinks, URLs or web addresses within any seller generated confirmation email messages or any product/listing description fields that are intended to divert customers away from the Amazon sales process.

 

In fact, Amazon sellers never even see the email addresses of their buyers…

“Buyers and sellers may communicate with one another via the Buyer-Seller Messaging Service, which assigns unique Amazon-generated email addresses to both parties. Sellers are prohibited from providing or soliciting direct, non-Amazon-generated email addresses on the Amazon website or in correspondence through the Buyer-Seller Messaging Service.”

 

When selling directly through Etsy, you enjoy an opportunity to include promotional materials that fortify the relationship and entice customers to visit your own independent, ecommerce site. When selling on Amazon, however, Amazon controls the process from beginning to end, and sellers are forbidden from including any materials which might potentially “divert” the Amazon-owned customer.

 

Per the Amazon’s Sellers Guide >> “Now that you’ve read your Amazon.com seller agreement and associated policies and guidelines, we want to give you additional information that is key to selling successfully on Amazon. Things to Avoid: Including any marketing or promotional materials with packing materials.”

 

Note: This bit of guidance was originally posted by Amazon behind a password-protected area that’s exclusively accessible by their sellers. The version I linked above is a direct quote on a publicly-accessible Amazon seller’s forum, but the content is identical and the guideline comes directly from Amazon.

 

That policy binds the hands of Amazon sellers and leaves the ball firmly in the customer’s court. There’s no prompting or incentive for any single customer to track down your site, which is the typical catalyst for converting a customer who found you via a third-party platform into a customer whom you “own.”

 

 

AMAZON OFFERS NO HIGHER “HANDMADE” STANDARD

Etsy’s definition of handmade has been a persistent sticking point over the last several years, ruffling more than a few feathers. The “handmade” concept has been iterated in several ways by Etsy executives, and this is the latest incarnation >>

 

“Handmade items are items that are made by you, the seller, or are designed by you and made with the help of an approved outside manufacturer who complies with our ethical manufacturing policies. If you sell in the Handmade category, you must be able to demonstrate that your items comply with our Handmade Policy. You agree that:
•  All handmade items are made or designed by you. If you work with an outside manufacturer to make items that you have designed, you must apply for outside manufacturing and choose ethical manufacturing partners.
•  You accurately describe every person involved in the making of an item in your shop in your About page.
•  You are using your own photographs– not stock photos, artistic renderings, or photos used by other sellers or sites. Read more about using appropriate photographs in this Help article.

 

Sellers have long been frustrated with the ever-evolving definition of the word “handmade” offered by Etsy, but Amazon’s definition of handmade does nothing to “put teeth” into the concept.

“All products available in your Handmade at Amazon store must be made entirely by hand, hand-altered, or hand assembled (not from a kit). Products must be handmade by you (the artisan), by one of your employees (if your company has 20 or fewer employees), or a member of your collective with less than 100 people. Mass-produced products or products handmade by a different artisan are not eligible to sell in Handmade.”

Unfortunately, Amazon’s entry into the handmade world hasn’t helped shore up the definition so many of us seek. It’s interesting to note that the much ballyhooed Three Bird Nest fiasco could easily exist on Handmade at Amazon too, so long as the buttons are lovingly stitched one-by-one onto the fresh-off-the-Chinese boat headbands and assuming that the company constrains its growth to twenty employees or less.

 

NO HISTORY OF SUPPORTING THE HANDMADE COMMUNITY

 

While many sellers have become disenchanted with Etsy as it’s grown, there’s little debate over the amount of seller support that Etsy offers makers and product designers. There are a myriad of support systems in place at Etsy designed to help entrepreneurs get their sea legs beneath them and build more successful businesses.

Some of those support systems include:

    • The Etsy Seller handbook: a collection of 300+ articles on everything from product photography  to brand development
    • Etsy Labs: a “creative community space” in Brooklyn that plays host to craft and business development workshops
    • The Etsy Wholesale Blog: weekly profiles of maker-centric boutiques accompanied by posts filled with strategies designed to fortify your wholesale program
    • Etsy Street Teams: communities of supportive makers centered around common product categories or geographical locations

 

Etsy’s outstanding educational support has spoiled us and Amazon hasn’t risen to the occasion.  Their seller support is anemic at best. In the final equation, Etsy has raised a generation of savvy makers that Amazon can now monetize.  While that’s a brilliant business move on Amazon’s behalf, the maker community isn’t any better for it. Amazon’s roots aren’t in the handmade movement, and I believe they’ve jumped on the bandwagon simply because Etsy has proven the financial viability of supporting makers and artists. I fear that handmade sellers are little more than dollars signs to Amazon.

 

A WORD OF CAUTION

 

I encourage my clients to invest the bulk of their time and energy in building the only platform over which they ultimately enjoy complete control: their own ecommerce site. Depending on any third party platform (Amazon, Etsy, Facebook, Instagram, et al) is a risky strategy that leaves you in a place of vulnerability.

 

Each of those entities is a publicly-traded company with a primary responsibility to return profit to its shareholders. Their ultimate loyalty belongs to their shareholders, rather than their users.

 

Further, because we exert no real control over those platforms, we leave ourselves at their mercy. One round of bad press, one algorithm update, or one policy change could spell disaster. The platform could implode or their customers could revolt en masse. The Powers That Be could simply change the rules and decide that we no longer fit their model, banishing us from the sandbox altogether. If those scenarios feel like obscure or abstract concepts then you either haven’t been playing in these waters for long or you haven’t been paying attention. I say that in love, but I can’t conjure a kinder or more accurate way of expressing that.

 

In order to build a smart, sustainable creative business, I recommend:

    • Building your own ecommerce site as “home base”
    • Amassing a carefully targeted list of email addresses from those interested in your products
    • Sending regular newsletters, brimming with value, to that customer base to fortify the relationships
    • Attracting new customers through intentional, high quality social media content, and thoughtful collaborations
    • Investing at least twice as much energy in your own platform as you invest in third party platforms

 

Have you taken Handmade at Amazon out for a spin? Are you an established Amazon seller who predates the Handmade at Amazon platform? Have you been mulling over the decision to set up shop with America’s largest retailer? If so, I’d love to hear your thoughts!

 

What has your Amazon experience been like?

 

What attracts you to the platform?

 

What fears or uncertainties surround your decision to sell via Amazon?

The difference between a distributor vs. a sales rep

DistributorsVSSalesReps

DistributorsVSSalesReps

 

I often see two concepts confused with one another + I thought it might be helpful to explore these two avenues of getting your product out into the world on a larger scale. Are you game? Hope so!

 

Distributors are companies that purchase products + house them temporarily in their own facilities, before reselling them to wholesale buyers. They employ their own in-house sales reps who cultivate brand awareness + build relationships with wholesale buyers in a clearly defined territory. Distributors can be key allies domestically and, most especially, when working overseas.Distributors always receive preferential pricing- a price point that’s below wholesale- though the actual pricing structure will vary by product category + order volume.

 

Sales reps are seasoned sales professionals who represent your brand to wholesale buyers with whom they’ve already cultivated a relationship.They make the introductions, answer product questions, make the sale and offer post-sale support to wholesale stockists.  That support might come in the form of helping merchandise your products in-store, keeping buyers aware of new product launches + promotions or passing on product feedback to the maker. They collect a commission in honor of their efforts. For most of the creative brands I work with in the apothecary, paper, housewares + gift space, that commission is typically 15% of the order total.

 

Let’s take a peek at a few graphics that will hopefully help you better imagine these sales avenues…

 

The RETAIL sales model look like this:

ManufacturerEndConsumer

The WHOLESALE sales model look like this:

ManufacturerEndConsumer2

The WHOLESALE sales model that involves SALES REPS look like this:

ManufacturerEndConsumer3

The DISTRIBUTOR sales model look like this:

ManufacturerEndConsumer4

 

 

One important thing to keep in mind: distributors actually take possession of the product. They warehouse it + employ their own sales team to promote it.Because they are actually handling fulfillment + sales (and because they’re ordering in large volumes), they receive better-than-wholesale pricing. Sales reps, in contrast, never stock product, so they’re not involved in order fulfillment.  They most often represent a whole stable of complimentary brands + help develop a territory for those brands, but they simply pass the order onto the maker + collect a check for those efforts.

 

DistributorsVSSalesReps2

 

Keep in mind,too, that everyone in those sales models (save for the end consumer) is working in order to realize some sort of profit. What does that mean for you? Well, as links are added in the chain, then one of a few things needs to happen:

 

1. As a maker, you might elect to decrease your profit margin (which isn’t the best solution) in order to build in enough margin for the other links in the chain. That means you make less money on each sale

 

2. This can often be balanced by higher prices in overseas markets. For example, I’ve been selling my apothecary brand through overseas distributors in Europe + the Middle East for many years now. Their retail price in those countries is always higher than the retail price of my products here in the U.S. Their costs are higher, too, thanks to increased freight costs, import duties + taxes, etc.

 

3. If you’re working with a domestic distributor and you don’t want to carve into your own profit margins, well,then it’s time to fire up the economies of scale and get those bad boys working in your favor. By ordering my raw materials in bulk, manufacturing in larger quantities and refining my creation process, I’m able to offer distributors significant discounts over wholesale costs, while still clearing wholesale-style profits.  Added bonus? Because I’ve ramped up production of my apothecary products to meet distributor levels, I reap even more profits on those same products when I sell them domestically through traditional wholesale or retail arrangements.  Huzzah!

 

I’m not aware of many small creative brands who use a distributor. Because they work in high volumes + receive preferential pricing, many startup brands either aren’t ready to work under this sort of arrangement or they’re unwilling to accept this type of pricing structure because they aren’t pricing correctly to begin with. But I implore you not to count out distributors out if scaling your company or exporting overseas is part of your long-term game plan.

 

Wish you could tag someone in to help you dig deep + connect with the core of your brand?  I happen to teach a knock-your-socks-off branding course for creative entrepreneurs.

 

Interested in polishing up your wholesale program to make it attractive to buyers + sales reps alike? LBU, my seven week, how-to-wholesale-intensive might be right up your alley.
If you’ve been approached by sales reps + distributors, what questions do you have about making that leap?

 

The magical mystery of Volume Discounts

VolumeDiscount

 

 

I’ve fielded this question not once, but twice, in the past  few days, so I’m taking that as a cue from the Universe that you, too, might be mulling over how to calculate volume discounts. Here’s my take..

 

50% is the customary + expected wholesale pricing structure. When an account orders in a quantity that triggers the economies of scale to work in my favor, then I share some of those savings with the account in the form of preferential pricing.

 

For example: if an order is substantial enough to help me order raw materials in larger quantities at better pricing or enables me to buy a new piece of equipment to increase efficiency, then I start revisiting that pricing structure. When I save, they save and we all win. But volume discounts just because they asked? That’s a losing proposition. You can’t consistently erode profit margins to please others and expect to build sustainable businesses.

 

I just-so-happen to have designed some of the coolest product pricing software on the planet. And one of the things that I love most about it is the ability to watch the economies of scale in action and understand how they affect the costs of production. But let’s back up for just a second… what exactly are the economies of scale?

 

VolumeDiscount2

 

 

Economies Of Scale: A term that refers to the cost advantages companies enjoy when expanding. For example: If a spa orders 10 sugar scrubs from your bath and body company, you’ll probably fill that order by purchasing a 5lb. bag of sugar from your local grocery costing $4 (or $.80 per pound). However, if you receive an order for 100 sugar scrubs, you’re more likely to purchase that sugar in a 25lb. bag at a restaurant supply company at a cost of $14 (or $.56 per pound), thus saving $.24 per pound of sugar.

 

In another example, let’s assume your company manufacturers wooden furniture for children and you rent a workshop at a cost of $500 per month. If one person working 40 hours a week can produce 10 pieces of furniture each month, then each of those ten pieces of furniture “costs” the company the equivalent of $50 in rent. However, if orders increase enough to justify two workers working 40 hours a week to produce 20 pieces of furniture per month, then the rent expenses associated with a single piece of furniture are reduced by half, to just $25 per piece. Viola! That’s the magic of the economies of scale.

 

So, back to that software…one of the most beautiful things about my Price-O-Matic product pricing system is that it enables you to add inventory and “build” products within the system. It saves those products and automatically tallies  the costs of your overhead, supplies and labor to arrive at a pretty comprehensive peek at the costs of production. You can build a batch of 100 letterpress cards + then switch that over to a batch of 500 letterpress cards, having only invested a few minutes of your time and a series of clicks. The software reconfigures all the math and lets you see the economies of scale in action, so you understand how they affect your production. No more blind stabs in the dark. No, no, no… now you’re empowered to assert price proposals with mad confidence in mere minutes. Three cheers for technology, eh?

 

PriceOMatic-VolumeDiscounts_700

 

And, if you’re absolutely committed to simply offering buyers 5 or 10 or 20% off of X quantity just because they asked, well, then Price-O-Matic has a section where you can enter various quantities and proposed discounts and it will do that math for you, too. I recommend establishing a minimum “floor” of profitability (say, 3x your costs of production or 225% over your costs of production) and the POM system will color-code the results of all that random discounting for you, enabling you to see- in the veritable blink of an eye- when you’re easily exceeding that profit minimum, when you’re cutting it really close and when you’re losing your…ummmm… donkey.

 

If you think Price-O-Matic can help you gain control of your numbers, then feel free to reserve a copy right over here. Have other pricing questions? Drop them in the comments below and I’ll see if I can help!

The secret of affordable bath and body labels (and gourmet food, too!)

Label5

I’m lucky to work with some amazing bath, body and candle brands and some of the coolest gourmet food companies on the planet. Many of those are startup brands who are bootstrapping the way to their dreams. Working with limited funds, many of my clients print their own labels in order to save money. When one actually pauses to crunch the numbers on the label material, toner, wear + tear on your printer and the time invested to print labels sheet-by-sheet, professionally printed labels usually come out ahead of the pack on price and they always come out ahead on quality.

 

I long ago learned the secret to affordable label printing, and I’m excited to share a few tips that might put those swanky pro labels within your reach a lot sooner than you imagined. First, a few terms which will make your toes tingle:

DIGITAL PRINTING:

The process of using laser technology to apply ink to the label material. Traditional printing uses metal plates to apply the ink, and those plates don’t come cheap. Even an insignificant change in label art (reworking a sentence, correcting a typo, changing a fill weight) necessitate a completely new plate. For creative brands running a fairly small number of labels, digital printing is the way to go.

GANG RUN PRINTING:

The process of combining several print jobs with a professional printer in order to tap the economies of scale and reduce the cost-per-piece of each label.

 

DIGITAL + GANG RUN PRINTING = CHEAPER THAN YOU CAN PRINT AT HOME

 

I have two digital, gang run printers that I recommend: Lighting Labels and Frontier Label. Both offer low minimums, free sample packs, a variety of label materials, instant online estimates, and quick turnaround times.  Let’s take a look at the power of digital gang-run printing to reduce the cost of professional printing. I played around with Frontier’s instant online estimator…

 

Label5

 

I selected a random label size (2″ x 6″) and ran it through a few scenarios at Frontier Label. Initially, I selected one label design on white plastic with a matte finish in a quantity of 100 pieces.

 

Label6

 

Total cost for the job? $221 and change. Yeeeouch! That equates to $2.21+ per label. No thank you. But what if I could bump that label order from 100 to 500 pieces on a single run?

 

Label7

 

The total cost for the job increases, of course. But let’s look at that estimate a bit closer, shall we? You might expect that if 100 labels set you back $221ish dollars, that 500 labels might cost five times as much, or around $1,000. But that’s the beauty of any type of professional printing… as the quantity increases, the price plummets. At the 500-piece mark, our labels have decreased from $2.21 each to just $.50ish cents per piece. Hells yes! Let’s push this experiment a little further and see what happens.
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