Of course, there are recurring themes, and one of those themes is misaligned expectations with performance based partners or agents.
How are Expectations Misaligned?
Generically speaking, the 3 most common expectations that many brands have for performance based retail partners include the following:
- They have “skin in the game” and will work harder to push sales
- There’s zero financial risk to the brand because of sales-based compensation to partner
- Buyer meetings and sell-in (1st purchase order to new account) will equate to bottom line revenue goals / ROI
“Skin in the Game” ≠ Reliable motivation or sales
What’s true about the best sales agents, distributors, and other performance based partners?
They have many product SKUs to choose from and allocate limited resources according to what sells the best and easiest. It’s easy to be ignored or set aside as a new brand.
Many new product companies are smaller teams of designers, engineers, or developers who see their product as their baby. Will everyone else love your baby the way you do?
In many cases, when a product isn’t truly ready for retail or the brand isn’t supporting sales / marketing efforts as they should – performance based partners are pretty quick to allocate attention and resources elsewhere.
If it takes too long for your “baby” to walk, it’ll get left behind.
Zero Financial Risk with Sales-Based Incentives
When you’re a young brand, budgets are tight, the team’s bandwidth is limited, and every decision could be life or death for the company.
When taking the plunge into the retail space, many of the assumptions of the Amazon world are brought along for the ride. Fast turnaround to place product on the platform, pricing is correct, existing marketing tactics will work, supply chain is set up correctly, etc.
Retail takes longer, is more expensive upfront, requires more actual conversations (with real people), has a different financial structure, and accordingly has greater consequences should you make an error.
I won’t get into all of the differences on this post, but these assumptions moving from Amazon to retail are often what lead to the misaligned expectation for risk that a brand sees when bringing on performance-based partners.
What do I mean exactly when I say risk?
- It’s not rare for a brand to spend 6-12 months after launch to earn their 1st purchase order with a noteable retailer. What happens if negotiations fall through, retailer demands more than you can handle, or your partner decided 3 months ago to stop pushing the product altogether? You’ve successfully wasted 6-12 months of time. And a lot of money.
- Brand signs a distributor with many relationships, resources, and personnel. Great! Now the distributor expects you to actively participate and allocate funds for marketing efforts. How effectively are these funds used? Do you have these resources? Often times brands don’t know which marketing levers to pull.
Purchase Orders ≠ Bottom Line Revenue
You’ve made it! You earned a $500,000 purchase order from a larger retailer. However, after using a performance-based agent to get into retailer, after 2 months the retailer is finding it difficult to sell all of your products. Perhaps due to poor marketing. Perhaps due to mismanaged forecasting. Who knows?! The result is not positive either way.
Guess where that inventory is likely to go? Straight back to you. Now you have $250,000 in inventory / additional overhead sitting idle in your warehouse.
In the world of startups and building a new brand, investors and business owners can get caught up in short-term milestones and large purchase order deals while forgetting about who is really in charge of your success… the consumer!
Have you seen these types of misaligned expectations happen with brands before? I’d love to hear any stories or comments on your experience or perspective of brands (perhaps yours) making the jump into retail.
At Retailbound, these often-unknown risks are why we’re in business today and why brands decide to leverage our risk-averse model for retail growth.
Interested in getting your product in retail or need help with managing your retail channels, contact Benjamin at email@example.com.