Book Excerpt: The Carey Formula
Book excerpt continued from the October 2006 RMIA newsletter. Over the past 20 years, Barbara Carey has brought over one hundred products to market, launched seven companies, and been awarded a dozen patents. Based on lessons learned from each new venture, Barbara has developed what she calls, "The Formula," a corporate dogma that encompasses criteria for product development, manufacturing, and marketing.
This book excert is taken from Chapter Seven: Selling Yourself and Your Product—A Recap from Barbara Carey's new book The Carey Formula. Barbara had just been discussing setting up an appointment with a prospective buyer.
Pre-meeting Thoughts: A Checklist
Define your goals. Do you want to close or are you building a relationship
to close next time?
List what you need to do, explain, or say in order to close the deal.
Questions to consider:
What is the margin of your product?
What is the margin of the category?
Who is your competition?
Why are you better and what is your edge?
Know what kind of incentive can you offer this account to avoid a guaranteed sale. Will you be willing to offer them markdown dollars? (If your product does not sell at the rate they want, they will still keep it on the shelves, but lower the price.) You can help them pro- tect their margin by giving them markdown dollars upfront. They hold a portion of your monies owed to you from sales and release them when your product does sell. If it does not sell they use that portion to mark the price down. This is a much better option than getting product returned from a guaranteed sale. Another option is to offer them exclusivity for a short period of time only if they want to get behind your product by, for instance, taking in a large order with good payment terms.
Have your item and vendor forms ready. Try to call the account in advance and have item and vendor sheets prepared. All accounts will need this basic information from you. The easier you make it for the buyer, the better the chance that they will work with you. The Carey Start-up CD contains easy fill-in-the-blank forms for your reference. Bring your prototypes. Come prepared with a works-like and lookslike prototype that you can demonstrate. Be prepared with packaging. Bring looks- like mock-up packaging and displays. Get your UPC: Have a Universal Product Code (UPC) already registered; this is a must-have item. These are issued by the UPC council, and they not only identify your product, but the manufacturer as well. The application process is quite simple and an easy UPC number generator is in The Carey Formula CD Library. Line up your liability insurance. You won't get a written order until you have product liability insurance. Unfortunately, we live in society where lawsuits are common, so this is another must-have item. Many insurance companies and insurance brokers can help you buy a policy. Generally, I don’t take out a policy until I have a solid verbal order. I provide a proof of insurability at the initial stages. Once the deal has been signed, I go ahead and take out the policy. Again, in The Carey Formula CD Library, I provide a list of insurance companies who can insure consumer products. Remember, you won’t get a written order until you have product liability insurance.
Bring business cards—or maybe not. This is up to you. With Hairagami® I chose not to invest in business cards until I hit the $10 million mark. (I don't always do things the conventional way.) I told the buyer at the beginning of the meeting, “I have no business cards, but fasten your seatbelt because I’m going to show you the very best program you have ever seen.” By not having cards, I also sent this signal: I’m pumping all my funds into my products and not on meaningless extras. This also sets me apart. At the beginning of nearly every business meeting you open with an exchanging of the cards. I hope that by the time I walk into a room for a meeting, the participants will already have a sense of who I am. If not, then I’ll be known as the woman without business cards. Stand out any way you can. I always write a follow up e-mail, which ensures that the buyer has my contact information and encourages continued conversation.
Sell programs not products. You may only have one item. But talk about it like it is bigger than life. Show how you can do planogram programs and promotional programs. Show the buyer your vision on growth. Show them a peek into your vision of ancillary products or line extensions and even color combinations. Let them know you mean business and are a serious player.
Let your buyers know they need you. Their job is to buy. Their job is to find the next hot item. Evaluate your buyer just like you would anyone in a healthy relationship. Remember everyone wants what he or she cannot have. It's not a bad idea to play hard to get, but do it with utter grace, respect, and dignity. You have limited inventory and you are going to place it in the accounts that really get behind it. Make your buyer want your product, but not by rolling over and playing dead. You buyer won’t come to you if you look desperate. Be confident. Everyone wants a product that is solid with a plan to support it. They also want what is hot; since you have limited inventory, position your product as the type of hard-to-get item. Your persona should exude the aura of conviction. Don't let ‘em see you sweat and always keep your composure. It is not a bad idea to throw in a bit of humor, but your timing must be impeccable.
Know when to keep your ears open and your mouth shut. Many times you will be in a waiting room with other vendors who are there to meet with buyers, as well. I’ve sat in a lot of rooms and heard people speaking too freely about their products, their costs, and the like. As much as I believe in sharing information with you to help you get started, I don’t want to give my competitors any advantage by revealing any of the specifics of my personal manufacturing costs, promotion plans, or of my particular project. You can learn a lot and get some great insights by listening, but you only stand to lose if you say too much.
Again, keep in mind that getting an order from a buyer is just one part of the entire process. Here’s a quick summary of many of the major points you will want to discuss:
1. Quantity. Of course, you want your buyer to purchase a large number of items from you. Keep in mind, though, that your sell-through is crucial. Also factor in that the more they order, the higher your costs will be overall initially, though the production costs per item will likely be lower. If you don’t get great terms (see below), you may wind up having to pay out of pocket for your production costs. More than likely you will earn those costs back, but I would much rather not have that out of pocket expense, but instead I would want to use that money to advertise and promote the product in some way. As a rule of thumb, I usually work in round numbers based on a manufacturer giving me the cost per unit based on 100,000 units that would be purchased in one year. Then I order 10,000 units at a time, but at the 100,000-unit price.
2. Price. Even before you set foot in a buyer’s office, you have to know what your costs will be and what profit margin you will need to sustain your operation; that means having the funds to do additional manufacturing runs, create, design and print packaging, and have additional monies available for advertising and promotion. You can work with your buyer to come up with a retail price that will get them the margin they need in their department (which you should already know and be able to exceed!), and what the competing products in your category sell for. Just as you would in any negotiation for a high-ticket item, such as a car purchase, leave yourself some wiggle room and understand that your buyer has some flexibility as well.
3. Payment Terms. The customary turn- around time for a retailer to pay you once you’ve delivered the goods is thirty days. For a new item they may want longer terms. This is also true of how you will be billed. Obviously, you’d like people to pay you more quickly than you pay others. I’ve been able to negotiate terms as short as three to ten days. Don’t be talked into terms that are disadvantageous to you. While we are talking about each of these negotiations in isolation, they are all part of a package you put together with the buyer. Be willing to give a little on price if it will get you better terms. Losing a few cents per item won’t be bad if you get your money weeks earlier and can put it to use promoting the product, paying your own bills, and avoiding late fees, or putting it in the bank where the magic of compound interest can do its thing.
4. Promotion/Merchandising. There are two main retail merchandising programs. The first is a promotional program. Promotions are typically seasonal such as an offering for Halloween or Back-to-School. Or they are done when a manufacturer has a special packaging offer. Promotions only last for a short and specified period of time. If you miss your ship date you will miss your shelf presence as well. It is really important to be on top of your promotional delivery schedule.
The second kind of retail program is called planogram. This is when the buyer reviews all products in a particular category, on a set schedule, and then sets the shelves for the next year, usually in a mock-up room. At midyear there is a second review to get rid of the dud products or to take advantage of a hot new product.
I always shoot for planogram. Then I present support programs to the planogram as promotional sales. I want to be on shelf the entire year, and I also want to use the promotional program to add sales dollars to both my customer and my company. For example, I try to work with the buyer to sell Hairagami® year around. I provide pastel colors for Easter promotion, glamour items for the fourth quarter, and promotions for the hot summer months. I try to stay away from specific Halloween or Christmas print or seasonal products because they don’t go on the shelf well with the rest of my planogram after the promotion. Any way you look at it, returned product is costly.
5. Cooperative Advertising. Most retailers produce in-store fliers or do direct marketing to consumers through the mail—think of how much less bulky your Sunday paper would be without those sales inserts. Retailers don’t often put your product in those circulars out of the kindness of their hearts. You can allocate a set amount of your profit to go toward paying for those listings in those advertising pieces. The same is true for premium placement in stores— end caps, front of store tables, window displays, etc.
6. Markdown Dollars/Returns. You can build in a cost structure that anticipates what will happen if an item isn’t moving particularly well. By anticipating in advance what the markdown prices will be, you can preserve your margin, the buyer’s margin, and sell more product— thus increasing the ever-important sell-through figure. Again, this is another flexible option you can use—a bargaining chip in negotiating other parts of the deal. The fill-in-the- blanks P&L in The Carey Formula CD Libray takes into account these expenses.
7. Exclusivity. As you’ve seen, I’ve used this bargaining chip with retailers to help get advantageous terms for my products. There are time limits on the period of time you grant exclusivity, and you can also have more limited kinds of exclusivity, such as channel of distribution: for example, you may only make your product available in one grocery store, but leave it open to sell in department stores, etc. I’m reluctant to ever grant anyone absolute exclusivity, and it’s rare that a buyer would ever demand such terms.