What should my wholesale minimums be?

From yesterday’s post came this observation:

I worked for a very indie designer who had to cut her flexible minimums policy after buyers would take advantage by purchasing basically one-offs for themselves at trade shows at wholesale cost, but pass on the line as it wasn’t a fit for their store…any thoughts?

I used to agree with your indie designer but a few things have changed my mind.  Context: we’re talking about more expensive, innovative (read: risky) products, not a commodity item like tube socks sold in shrink wrapped multi-packs. When retailers buy a single item -presumably even for personal use- what are we really upset about? These are small numbers, so it’s not money really. I think designers are upset that buyers are “taking advantage” of wholesale access, proximity and relationships. If it’s a personal buy, we feel it’s only fair that buyers should pay retail like everyone else. Drilling it down, resenting the transaction is an emotional response, not a business one.

There’s a couple of reasons I think retailers should be able to buy single items even for personal use. Buyers are representatives of products. That they choose to wear yours is an affirmation. I realize affirmation doesn’t pay the bills but they need to test products, why should they pay retail for the privilege? Were this a perfect world and we had the money, some of us would prefer to gift them entirely so it can’t be the money. I know one retailer I would definitely gift. And yes, after trying it out, they may find there’s something off about it; it doesn’t wear well or fit right or something else so it’s not a fit for their store and they aren’t comfortable telling you why. Or maybe stylistically it’s just that; it’s not a fit for their store. They buy it and wear it around, gauging responses from customers and friends but the trend doesn’t resonate with anyone.

When we buy sample fabrics in small quantities for prototypes, how are we doing anything differently? The only difference I can see between buying sample yardage and retailers buying single units is that sample yardage sales are sanctioned, permitted owing to sales policies of the vendor in question. Because it’s sanctioned, we feel entitled to it. But think about that for a moment. In part, we use the process of sample ordering to gauge the transaction quality of a future supplier, a test run of order fulfillment. If sample purchasing goes poorly, why would we order yardage even if the fabric is great? We should not presume that retail buyers are doing anything less than we would given half the opportunity.

Returning to what I presume to be resentment that buyers are taking advantage of their proximity to wholesale buying (and) relationships, don’t we all hope and aspire to do this? Yes we do. We hope to meet that pivotal contact in an elevator, develop a relationship and later use our proximity to personal advantage for either ourselves or someone we know. Even if we can’t use the contact, we leverage our access to influential people to increase of our standing with peers. And it works on a personal level beyond business. I met Jerry Hall’s best friend from high school. She complained that everyone wanted to be her friend because Jerry always came to her birthday party in podunk Texas.

The problem with relationships (as opposed to product) is that the costs or value of the elevator encounter outcome cannot be quantified. Lacking financial context means we can only assign a value of zero. The contradiction with buying single items at wholesale is that we can assign value, usually in terms of loss meaning the retail mark up we feel we are “owed” on the single unit sale. It only makes sense to resent this loss because it’s been proven we assign more weight to losses than we do to potential gains -the whole reason people throw good money after bad. It logically follows that we also assign more value to favors we do for others than they assign to the value of the favor we’ve done for them. This is called gratitude decay:

Flynn asserts that immediately after one person performs a favor for another, the recipient of the favor places more value on the favor than does the favor-doer.  However, as time passes, the value of the favor decreases in the recipient’s eyes, whereas for the favor-doer, it actually increases.  Although there are several potential reasons for this discrepancy, one possibility is that, as time goes by, the memory of the favor-doing event gets distorted, and since people have the desire to see themselves in the best possible light, receivers may think they didn’t need all that much help at the time, while givers may think they really went out of their way for the receiver.

Returning to my example of the value of proximity -being able to buy at wholesale and the loss of retail margin we fight to regain- versus the proximity of an elevator encounter with a pivotal person -no dollar value determined and a possible favor that decays- it makes psychological sense that we are more resentful over the loss of a retail margin we’re “owed”. We feel we’re being taken advantage of. This is why I said above that you must be mindful of separating what truly amounts to a personal emotional reaction versus a saner business mindset. It may be to your advantage to sell single units at wholesale even if you suspect the item is for personal use.

As a practical matter, it costs you more to sell single items at wholesale. You may decide to exact a surcharge on single orders that covers the cost of fulfillment. A lot of suppliers do this. If you buy less than the established minimum, they charge a little extra. Again, the point of the surcharge is not to attempt to recoup the loss of what should be retail mark up, but to cover the hard costs of processing, packaging and shipping a single unit order. You could couch it in terms of discount. That’s what I do. X discount for given quantities -at the outset. The one exception I have is one buyer who gets the full discount even though he only order four books at a time. Sure it costs me more to service the account but he makes up for it by ordering much more frequently than any other customer I have.

You’ve surely noticed by now that I haven’t actually said what your minimums should be. That’s because I can’t. No one can, not if they’re being honest with you and themselves. People can only tell you the sum of their experience as it applies to their product, their price points, their customers and their experiences (beware the perils of narrative fallacy). Your minimums should probably be lower than you had imagined. In this economy, it would pay to have a greater variety of your products available in small shops and they will order more frequently if they have this option. Particularly if you have no minimum on reorders (recommended).

There was something else I meant to mention in this post that I can’t remember right now (too many distractions) so I will make a note at the top of the page if I amend this entry to include it. In the meantime, feel free to post your queries in comments to see if we can come up with minimum figures that are more tangible.

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