Whether you are
selling shoes, electronics, airline tickets or hotel rooms, how you distribute your product does matter.
If you sell anything, your New Year’s Resolution should be to improve your overall profitability. There are lots of ways to be more profitable, such as spending less than you make, but for the purpose of this blog, we are going to talk about distribution.
So you should just sell more. Right? Wrong. All channels are not equal and pricing is a key factor of distribution. You need to arm yourself with information to make smart distribution choices.
- Find out what channels that you are using to sell your product. Include every possible way that people can buy from you, including one or more retail stores, catalog(s), phone/call center, your website, links on social media (Facebook, Pinterest, etc.), third party retailers, wholesalers (that may package your product in with other products). If you are not distributing your product through third parties, ask yourself why. Then look at your options. Bigger actually can be better, but not if the cost is too high or the terms are too onerous or too strict (e.g. demanding exclusivity before they prove their worth to you).
- If you do distribute through multiple channels, make sure that you are tracking what channel your sales originate from (even if the original inquiry is made on another channel). There should be a field in your sales database for Referral Channel and Sales Channel. If you are not sure, go ask your CFO is this is tracked. If not, see if you can add it.
- Know your average unit price for each channel. While one channel may have huge volume, it may be at your lowest price, in which case, it is not necessarily your best channel. If you sell multiple products, you can track this by type of product, or you can average all of your products together. Take the total sales for the group and divide it by the total number sold. That is your average unit price.
- Know all of the costs for each channel. Do you have a sales rep that calls on third parties? What is the cost of your call center to support your website? How much do you spend to produce and mail your catalog/brochure? You may be driving business to your website, but may be offering a lowest price guarantee and you may have higher costs than third party channels. This is a classic mistake. Take your total direct costs by channel and divide it by the units sold through that channel and that is your unit cost.
- Know the conversion rate for each channel. Quite simply, conversion rate is the percentage of people that buy your product versus those that just come in (or come online) to look. Online, it is sales divided by the number of unique visitors. In catalog sales, if you distribute 100,000 catalogs, but only get 10,000 orders, that is a 10% conversion rate. For the call center, it is the number of people that buy divided by the total number of calls.
You will likely need to talk to multiple people in your organization to get all the information (CFO, CMO, head of sales). Here is a simple spreadsheet to gather the information. You will want to customize yours to your organization. This is a great exercise for your executive team to work on to start the year.
Here’s to a more profitable, smarter 2014.