4 Program Costs you should always factor into your product pricing!

Program costs can be considered any additional cost a retailer is going to ask you to be responsible for paying.  These costs should be built into your cost structure prior to quoting.  Not building in these costs prior to quoting a retailer is a a recipe for disaster.  Your company must be able to incur these costs and still produce a healthy margin for your overall long term retail strategy to work.  

Some common program costs that must be considered are:

1. Returns - A retailer might ask for a % off invoice to cover any returns.  This % can range from 2%+ depending on the product and as an allowance can be agreed upon up front.  An allowance allows a retailer to deduct the same amount from all invoices irrespective of the actual returns percentage.  At times this may be a win for the retailer as the returns could come in lower than the agreed upon amount or at times this can be a win for the vendor as at times the returns can come in higher than the agreed upon amount.  If an allowance is not possible the retailer will generally ask the vendor to be responsible for all returns.  If this is the case you must accrue an amount on your own to ensure you are not left short when the retailer takes this deduction.
2. Freight - At times retailers will ask for a “Delivered Cost”.  Delivered cost means that you will have to pay to deliver the product to the retailer therefor you must factor this cost into your pricing structure.  
3. MDF - MDF stands for Marketing Development Fund.  This would be money your company would accrue for future promotional opportunities or a retailer will require that you contribute to a fund.  For example, when working with Amazon they will ask for 12% coop or MDF.
4. Mark Downs - This is a fund you would accrue for use in liquidating slow moving inventory from a retailer.  Many times retailers will not mention this, but will come to you later asking for money to help move stagnate product.  It is best to accrue for this on your own so you have money when the time comes.  For example; some club stores do not transfer merchandise from warehouse to warehouse which means you might get an order from warehouse A, while getting a markdown request from warehouse B only 5 miles away.  So at the same time your product is growing nicely in one warehouse you are marking it down and clearing it out of another.

It is important to note that some retailers will negotiate program costs with you upfront and will deduct the negotiated percentage direct from the invoice when paying you.  Other retailers will not negotiate this upfront, but will still make deductions from your invoice when paying.  It is always the vendors responsibility to ensure the proper program costs are factored into pricing prior to quoting as it is very hard to go back to a retailer and increase their costs simply because this was missed the first time.

TLB Consulting has created several easy to use pricing templates for all types of retail.  These templates are completely fomulated and offer recommended program cost percentages for different retailer types.  Simply plug in your unique numbers and let the template price your product for you.  Click here for more information on the pricing templates.

How long will it take to place my product into a retail store!

Under the frequently asked questions category "How long will it take" is by far the most prolific question asked.

This is not surprising as vendors are anxious to see their products on the shelves of big retail and finally be rewarded for the long hours it takes to conceive, create, produce and market a retail item.  No one in the final stages of bringing a product to market is without significant battle scars, however in the foxholes of product development there are no pessimists.

There is no exact science when it comes to determining how long it will take to sell product into retail, however items generally fall into one of two categories. 1.  Products that have a clear category and dedicated shelf space already in a retailer.  An example of this could be flash drives.  Perhaps your company has developed a new type of flash drive that will blow the market wide open.  In a case like this we would only have to convince the buyer to purchase our new and innovative product not to create brand new space on the shelf as they are already selling like items.  2.  Products that are brand new to the market and have never been sold before.  Items like this create double the work, not only do you have to sell the benefits of the new item you have to help the buyer understand where they would merchandise this new product and why taking a risk on it will pay off.

Although the newer items to market will generally take more time and work you can expect the process to take 3-18 months or longer.  I know this seems like a long time, however unless you are Sony, Campbell's,  Johnson & Johnson or like companies the process will be lengthy and the sooner you begin  the faster you will see results.

Below I have created a best case scenario to help illuminate the process.  For the purpose of this example we are going to say that the buyer loves the product out of the gate, they don't go to China, get sick or go on vacation during the process.  This example begins during the preparation phase.

1. Sample evaluation, pricing strategy and presentation prep - 30 Days
2. Sending the presentation to the buyer and receiving a response - 30 days 
3. If requested sending samples to the buyer - 15 days.
4. Review of the samples by the buyer 15 days.
5. Filling out of vendor paperwork, negotiating the contract, receiving all necessary signatures, being approved and receiving your vendor # -30 days.
6. QA testing on the product or 3rd party audit on the manufacturing facility - 30-90 days if required
7. Cutting a PO - 14 days.
8. Lead time to manufacture the product - 60 days.
9. Delivery time to the retail warehouse - 15-30 days depending on where it is coming from.
10. Distribution time to the stores - 15 days.
11. Time to get paid - 60 days.

Remember the above is best case and even if we take out #6 above we are still looking at 91/2 months to complete the process with one retailer.  There could also be the scheduling of a face to face meeting required which will add time.

The idea of the above example is not to discourage, but to encourage.  The sooner you start this process the faster you will achieve your goals.  

At TLB Consulting we can help you through every step of this process.  We can help you maximize your time, effort and results.  Let us help you prepare for success. 

Visit out website or contact us now at Tim@tlbconsulting.com.

Installment #5: 5 common mistakes companies make when selling their products to Costco

#5 Hoping Costco will drop their current product for your product.


All to often when thinking about how to get product on the shelves of the best retailers in the country most manufactures think of better pricing, better cost and a better made product. Confident, they march off to their local retailer headquarters armed with these three elements and believing this alone will get them placement and remove their competition.

Before you make this mistake, a mistake made by many who came before you, please remember this: "You must be able to provide more than a great product at a better price to unseat the incumbent vendor."

What could be more important to Costco than better pricing and a better product? Listed below are three main factors that will hold Costco back from making a vendor switch even in the face of better cost.

1. Shipping and Logistics: Your Company’s ability to ship to all of Costco’s depots on time and with consistency is of great importance to Costco. Their floor plans are ever changing and if your product is late it could lose placement. They will also look at your ability to flow product to your own warehouse for them to pull from. Costco will not do transfers from location to location, therefore it is important for them to be able to flow goods to certain locations in smaller quantities from your warehouse.

2. Defect rate: New members and membership retention are the two engines that keep Costco moving and they will protect these like angry pirates on a treasure ship. A key factor in Costco’s image is the quality and durability of their products. Although your company will be paying for returns and defects Costco will not maintain an item with a large defect rate.

3. Depth of product line: Costco is interested in the vendors they partner with doing well. To this end they will work with current vendors on a multitude of products if they are available. This reduces their need to set up and train new vendors, obtain hard to get signatures and take chances on untested companies.

Costco is always looking for great products at tremendous value. If your company has such an item and you wish to replace a product currently in Costco please take into account and nail down the above items first. For a complete strategy on creating a partnership with Costco please visit my website TLB Consulting or contact me directly.

Here's to Conecting your product with the right people.

Installment #1: 5 common mistakes companies can make when selling their products to Costco!

Installment #1 - Item Value


Having the opportunity to sell your products to Costco is an exciting proposition and could be a huge game changer for your business.


With over 400 warehouses in the US alone which cater to an average 30,000 members per week it would not take long for the right item to make a HUGE impact on your bottom line.


However; before you go making down payments on foreign property, there are a few common misconceptions to be avoided which make a major difference between who goes "On Vacation" and who has a "Staycation".
Misconception #1:

• Believing Costco's #1 goal is making money off your item: If you are in sales, the phrase "you are going to make SO much money off this item" has escaped your mouth more than once. We have all been there at one time or another. You want so much to convey how viable of a product you are offering, you may get over zealous with the aforementioned phrase. Although there may be retail companies out there that are very interested in how much money they will make on any item, Costco is not necessarily one of them . Of course, everyone is in the game to make money, but even more important to Costco than money is "Member Value". Offering their members Significant Value is the mantra that marches through every buyers head! Memorize this! Not violating the member's trust with items that do not offer value is the foundation Costco is built on and it is what keeps their membership renewal rate Over 85%! When items have value, they sell! Members spread the word and they sell even more! Eventually the word will reach a non-Costco customer who will then buy a membership to take advantage of the value, and so on and so on. Are you getting this? Value drives sales! When speaking to Costco, speak about the Value your product will offer, either in $'s off or More in the box. Buyers always appreciate when you know their business model!

Happy Selling!




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#2 - Believing Costco will change their business model for your item

For more information on me or my company visit my website!

How to sell your products to Costco, part 3

Hi all you Costco loving product sellers.

This will be the final post on the subject:

"The 11 crucial steps that should be followed before meeting with a Costco buyer."

If you recall we left off at step 6 which was "Other Costs", I hope these steps have been helpful let's finish it off starting with step 7.

• Potential sell through quantities: : Based on what divisions of Costco you are going after create some scenarios that show potential quantity sales. Costco has 3 divisions in the US and an international division. 1. Costco warehouse, 2. Costco.com, 3. Costco Road Show, 4. Costco Canada (Canada is Costco's second largest market with over 70 locations), 5. Costco.com Canada, 6. Costco UK, 7. Costco Mexico, 8. Costco Japan, 9. Costco Taiwan, 10. Costco Korea.
• PNL: Create an item PNL using all of the preceding information in the other Blog posts to determine viability of program. You never want to do this after the deal has been made. Entering into a program and finding out, after you are having success, that you are loosing money will be devastating.
• Costco: Decide which division of Costco you should contact first. Make initial contact with Costco buyer and gauge interest. You will probably need help here as getting through to Costco buyers can be very difficult if not impossible. If enough interest exists set an initial meeting at Costco HQ.
• Pre-meeting: Make a final decision on at least two, no more than three packaging options. Nail down your options as you will only have approximately 30 minutes to pitch your idea to Costco and you want to have time left over to discuss next steps. Make a final decision on cost pricing to include in presentation. Create your presentation and confirm your appt. one week prior to the meeting.
• Meeting: In your presentation be thorough, but not over the top. Keep your pitch smart and to the point. Be prepared for Costco to have some questions not just about your product, but about you and your company as well. Know your competition and your market. They will test you. Lastly make sure you nail down next steps and follow up before you leave the meeting.

Helping you partner with Costco is my specialty. I can personally help you with all the 11 crucial steps and even help you get through to the buyer. For more information please visit my website.