Should You Offer Guaranteed Sales?

Should You Offer Guaranteed Sales?

What are they, and how they’re different from consignment sales, why you might offer them, what products they’re best suited for, and 2 tips for implementing a guaranteed sales offer that’ll keep you from screwing you over and costing you a lot of money.

Guaranteed sales: you’ll be buying your product back from the store if it doesn’t sell by the expiration date or an agreed amount period of time. 

It’s not the same as consignment sales.

Main difference is who pays for the product upfront. In guaranteed sales, you’re on the financial hook. You have to buy back any product that didn’t sell, and credit retailer for the unsold items. Risk of unsold product falls on you.

Consignment: The retailer sells on your behalf, but ownership of the product belongs to you until the product is sold. The retailer doesn’t pay upfront as they do in a guaranteed sales model. In consignment, you pay the retailer a commission if/when they sell the product. If they don’t sell, you’re still responsible. Risk of unsold product still belongs to you.

Guaranteed sales: The retailer pays you first, then you credit back, somehow, for the product that doesn’t sell.

Consignment: retailer only pays for the product that does sell, after the sale, and only for the sold items. In this case, the risk is still on you. Because they’re only paying for what did sell, there is no need for a buy-back credit.

Consignment is uncommon in the food industry. Sometimes see it in very small retailers or gift shops. When you’re negotiating with a retailer, you’re almost always dealing with a guaranteed sales agreement.

When you might offer guaranteed sales: Most common with brands that have a very short shelf life (e.g., fresh juices, baked goods, other short shelf-life products) If you make something that is shelf or refrigerated stable, there is no reason to offer guaranteed sales. Let’s say your product has a 6-mo shelf life and a case contains 12 units. If they can’t sell 12 units in 6 months, they’re not the right retail partner for you.

If you have a longer shelf life, there’s no reason.

When might you offer it? When do you bring it up?

It’s a great way to show a retailer that you stand behind your brand. The buyer has more confidence in bringing in your short shelf life product knowing that if it doesn’t sell, it doesn’t affect their margins.

Don’t just offer guaranteed sales. There’s a time and a place. Be thoughtful and careful so you don’t have to buy back every week.

Tip 1

If/when you agree to a guaranteed sales, negotiate a limited time period that you’ll buy back. You might offer guaranteed sales as a foot in the door to a new retailer. Unless you’re a very short shelf life product, negotiate guaranteed sales for 30-90 days. Don’t be in year 2 and still doing guaranteed sales. Caveat is super small shelf-life product.

Tip 2

Set expectation with the buyer that you have the power to override any order they place. Ex: say you sell 36 loaves of bread to a retailer every week. And every week, you have to buy back 18. You can override them and only let them buy 18. This happens in the opening conversations with the buyer. Everything is negotiable. 

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