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Wholesaling Contracts- Advice?

For the past couple of years, I've been traveling around selling accessories at conventions and local events. I've gotten to know a couple of the other vendors that regularly attend some of the same shows I do. This past weekend, I was approached by one of the vendors asking if I would be willing to sell some of my stuff to him wholesale.

I have no problem doing discounted rates on wholesale orders, and in fact I have some of my items available in a shop in the next city over. However, that's a different story, as the store owner is someone I know, and I can trust her not to screw me over by selling my own items at shows we're both going to. (We usually only have one show a year in common anyway.)

I know, since I'm the manufacturer of my own items, that in theory my prices would still be better than the retail prices of the fellow I'm wholesaling to. Yet, some of the shows I work involve younger folks (teens-college age) that don't always understand the "shop around until you find the best deal" concept. This vendor, if he attends the same shows I do and sells the items I've sold him wholesale, could still get sales on said items leaving me to not get any from those customers in particular.

I basically would like to put together some kind of a wholesale contract that gives me some kind of exclusivity to sell my products at shows and not be in direct competition with "myself," as it were. (I know I'm not the only one to manufacture these types of items, and I know that there's no way to prevent other vendors from selling similar, but I don't want MY wholesale items being re-sold at shows where I'm planning on vending.)
I'm trying to figure out the best way to word a contract that covers my rear. I don't want to list the shows and conventions I vend at in the contract, since they are subject to change. This vendor told me he does 50+ shows per year, sometimes multiple shows over one weekend, as his business is fairly big. I am thinking about having a clause that states he cannot vend my products within the states that I sell in (which are currently limited to Florida, Georgia, and North Carolina) unless express permission has been given in writing for individual shows that I know ahead of time I will not be attending.

Has anyone here ever dealt in wholesaling their products, and using a contract in this manner? How do you deal with the exclusivity? What other bases do you think I need to cover, in order to protect myself not only as a manufacturer, but also as a vendor?

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( 10 comments — Leave a comment )
breakspire
Mar. 22nd, 2012 08:29 pm (UTC)
I'm interested in this as well, and at what prices to wholesale at. I get many requests for wholesale, but they expect 50% off of my retail prices and since it's just me making things by hand I cant afford that.

Also, what quantities do you start wholesaling at?
beetlecat
Mar. 22nd, 2012 08:59 pm (UTC)
Wholesale is commonly 50% yes. The idea is that when you make something, you price it at what you need to sell it at to cover materials and time and the you *double* that to make your retail price.

Of course, I really have yet to meet an instance where this is actual a viable option without it getting too expensive for the customer XD

When I did wholesale I started at 6 items I think and just called it a bulk discount. Then it progressively had a larger discount as they bought more. In another instance I just put items I had never sold before in a gallery, priced them high/appropriate to the area, and he took 50% when they sold - really it depends on you. You make the terms and they take it or they do not.

If you will not make any extra money through wholesale (if the increased sales will not make up for what you lose off the top) then don't bother doing it.
puppetmaker40
Mar. 22nd, 2012 08:43 pm (UTC)
How big a % of their table would be your stuff?

I think putting a clause that if you are both at a show, they can't sell your stuff is reasonable or you can put a clause that if they wants to sell your items then they have to sell it at the same price that you are at that convention. I know a couple of people who do that and it works for the most part.

Since they will be buying from you, then there will (one assumes) communication so you can keep the vendor(s) of the venues you plan to sell in/at. Say DragonCon 2012 you get a table then you can e-mail them and say "I'm at D'Con 2012" so they have a heads up NOT to pack your stuff when they are getting ready for D'Con. Saving them space for other goods that they can sell rather than them showing up at a convention and finding you there so that a % of their goods is useless to them.
(no subject) - fenris_lorsrai - Mar. 22nd, 2012 08:51 pm (UTC) - Expand
celarania
Mar. 22nd, 2012 09:05 pm (UTC)
Personally I'd say keep it as simple as possible. If you're putting in a bunch of restrictions, it makes it difficult for the vendor to sell your product. That's the exact opposite of what you want. If you're selling something that will make up a large portion of their sale and table (~10-25% and up), then yes, you have more freedom. If you're selling something small like some earrings, you have to make sure it's not more trouble than it's worth.

his vendor, if he attends the same shows I do and sells the items I've sold him wholesale, could still get sales on said items leaving me to not get any from those customers in particular.</i>

No, no, no. This is exactly the wrong way to think about it.

When you sell to the wholesaler, let's say you sell your widget for $10 wholesale, $12 to customers, and the vendor sells them for $15. You may miss out on the extra $2 from the ones that you're not personally selling, but you are still making a profit on the ones the vendor is selling. You're still getting 5/6th of the normal revenue from those customer.

Basically it's generally worth letting the vendor go to the conventions you're going to in exchange for them selling your product at the ones you're not attending. You're still getting most of the profit either way. Don't make it a pain in the butt for them, because you want them to sell your product instead of moving on and picking up something that is less trouble.
beetlecat
Mar. 22nd, 2012 09:08 pm (UTC)
Definitely word it very specifically so there is no misunderstanding - phoning up and saying "oh btw you cant go to this show in a couple weeks here" will not cut it. If you kow your schedual for the year ahead of time then maybe simply make a new contract up every year

It's not uncommon to blanket out whole areas where you sell though if they are located anywhere near you that might dissuade them. But TBH if they are on the other side of the country then it's probably the easiest option. You do not need to blanket out whole states but whole geographic regions and cities is fine as well. or that plus specific shows out side of the area (or minus specific shows inside the area)

I think getting a list of their shows might help you to formulate a response to what is reasonable for both of you.

Remember, it is their best interest that you never cross paths as well and I wouldn't be surprised if they were planning something just like this on you.

One more thing to consider in the future, if you do another contract like this with someone else, most dealers want an exclusivity contract where you cannot sell you items to another wholesaler selling in their area. So how much area you give each person really depends on how many people you plan to sell your items.

Edit:

Also to add, make you you and he price your product the SAME. Unless they have a different package and name attached to it or are selling a totally unique thing from you (obviously not since this original question wold not be up then) then undercutting on your own product is a really bad thing sicne it pisses off customers and upsets whoever it is that is getting undercut.

Remember, you are both selling at *retail* price. You are not selling at a slight discount to him where he has to mark it up past retail to make a profit. Again this a thing that is often in the contract that wholesalers looks for - they want to know that you will not undercut them.

Of course, if you sell only wholesale and stop selling retail (another option that can be worth it with enough wholesale contracts out since you save the show fees/travel/etc) then this does not apply.

Edited at 2012-03-22 09:15 pm (UTC)
theblackdragon
Mar. 22nd, 2012 10:49 pm (UTC)
regarding the pricing of the product -- I do not think that _forcing_ this person to sell at the price the OP sets is fair. He's purchasing the product, the OP is still getting their money, and he's within his rights to set the prices he feels the items are worth. if it's more than the OP, fine, we've all dealt with marked-up merchandise at conventions before. if it sits at his table, eventually he'll come around and drop the price to a reasonable level. if it's less than what the OP charges, hey, the OP already got theirs out of the transaction anyway.

another concern about that point might be price fixing -- would those terms be enforceable in terms of an official contract?
nambroth
Mar. 23rd, 2012 01:53 am (UTC)
It is NOT uncommon for wholesalers of specialty items to set the retail price of the item-- not necessarily "Must sell for exactly $x.xx" but "May not sell for LESS than $x.xx". The company I work for does this, and it is enforceable.
theblackdragon
Mar. 23rd, 2012 08:15 am (UTC)
that sounds a bit more reasonable than setting one absolute sale price at which the items _must_ be sold. idk if the OP has any lawyer (or law-student?) friends they can ask for advice on the exact wording in order to keep it enforceable under the law, but it might be a good idea to that part of their contract double-checked just to be sure.
vickimfox
Mar. 23rd, 2012 11:12 am (UTC)
Legally, if you are selling sales taxable merchandise in Florida, you should be registered with the Florida Dept of Corporations and Florida Dept of Revenue. The second registration will assign you a tax collector id. This tax collector status will enable you to report sales, both wholesale and retail, and the sales tax collected.

To enter into a wholesale agreement, both you and the other party must exchange tax collector information and keep it on record. In this way, you can show the govt that the sale of merchandise to the other party was done with the intent that the other party would re-sell the merchandise. This is what wholesale means - you are selling to another party for them to resell. But, you can only do this if the other party is also set up to collect sales tax.

Regarding the amount to charge. Unlike others who talk of 50%, that is not how it is actually calculated. It often appears to be about 20 to 50% in the final calculations, but the actual calculations start from costs.

Suppose I have a widget that costs about $1 to make.

A common retail markup is 100 to 200% of costs. For this example, I'll use the 100% markup. The retail sale tag on widget would say $2. This would yield a profit margin of 50%.

A common wholesale markup, which is negotiated as part of the wholesale agreement, is usually between 5 and 15% of costs. For this example, I'll use the 10% markup. The wholesale price would be $1.10. This would yield a profit margin of 9%.

It is not required to have a contract, just the exchange of tax collector information. You could simply set a fixed wholesale price that applies to all resellers. For example, I can use my business account to buy wholesale from Sams Club. I don't negotiate a contract; I simply provide my tax collector information as part of my profile and verify at checkout that the bulk merchandise is being purchased with resale intentions.

Exclusive sales agreements are common in retail. For example, Hasbro entered into an exclusive sales agreement with Target for the Canterlot product line. Exclusive sales agreements are always time limited. The Canterlot product line agreement lasted for 2011. That is why in 2012, a person can buy Canterlot products from many retailers.


In summary, before entering into a wholesale agreement, check the following:
[] registered with FL Dept of Corporations
[] registered with FL Dept of Revenue as sales tax collector
[] calculate wholesale price based on cost and negotiated markup
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