How to Land a Large Purchase Order.
I just shipped four pallets of product to a large retailer. While I haven’t been paid yet (that’ll be a fun walk to the bank), I wanted to write the process I used to land larger purchase orders and how I fulfilled them (which basically is a crash course on how to do it).
For me, it’s a review on what went right and what went wrong. For you, it’s a chance to see what’s possible beyond farmer’s markets and small-town retailers. It’s by no means easy, but at least you’ll be a bit more prepared.
Let’s get started.
Last year, I took my little mustard company to New York City to exhibit at the Fancy Food Show. It was expensive and exhausting.
But, we made a few great sales.
- The first sale was to a large chain in Texas. They ordered $8,500 worth of product.
- We landed a $850 sale with Southern Season
- “Indirectly”, we just landed another $5,900 order (the one I talked about above).
All three of these sales follow a three-step process. This three-step process has helped me focus on landing the big fish in the sea. I know you’re waiting with baited breath, so here’s the three step process.
Step 1: Get to the decision maker
You want the buyer. The person who is going to send you the purchase order. And you need to find them as fast as possible. If it’s sending samples to an assistant buyer to land a meeting with the buyer, then so be it. But, the only person who is going to pull the trigger is the buyer (or lead merchandiser depending on what retailer you’re hoping to land). If they don’t reach out directly, use LinkedIn to find employees who work for the company, blind-mail some samples and see what happens.
Step 2: Price your product correctly
Whether you like it or not, negotiation is going to happen to get both parties to the right price. Yes, you still have to make money, (know where your break-even point is so you don’t lose your shirt), but be prepared to come down a little further to hit a targeted price on the shelf. Often times, the volume of a large order makes up for your lower profit per unit.
Step 3: Incessant follow up (to the point where it’s annoying)
I learned this one from a fellow sales manager at a cracker company: follow up until you get a no. And then follow up six months later. I talk a lot about follow up on this blog. It makes a difference. Every other day I’m alternating phone calls and emails. And even if I get a “no”, I follow up a couple months later — maybe there’s a new opportunity for me or we have a new product I think this retailer might like. Follow up until you’re blue in the face. And spend your time on the accounts you need to land.
This process takes time and a TON of effort. I’m still working on deals almost a year later from people I met way back in June 2014 from the Fancy Food Show. This is yet another reason you have to be in for the long haul. I’m not talking about a year to see if this works, but 5-10 years.
Anyway, you’re probably thinking, “Wow, Michael! That’s great for you, but I’ll never land those big purchase orders!” Yeah – I thought the same thing. But, reality is, you’re not going to make it anywhere on the $100 bi-monthly sale from your local store on the corner.
It’s the truth.
You need to think bigger. And I’m going to prove it to you by being incredibly transparent. I’m going to let you in on a sneak-peek to all of the numbers for the 2 big purchase orders above – and then compare that to delivering to a local store. You’ll notice your little store is, well, little.
It’s numbers time (my favorite).
Purchase Order #1: $8,506.80
- Sales: $8,506.80
- COGS: ($5,125.08) – 60%
- GPM: $3,381.72 – 39.75%
- FREIGHT: ($1,031.86)
- FULFILLMENT: ($164.64)
- NPM: $2,185.22 – 25.69%
Purchase Order #2: $5,928.00
- Sales: $5,928.00
- COGS: ($4,137.00) – 69.79%
- GPM: $1,791.00 – 30.21%
- FULFILLMENT: ($267.20)
- NPM: $1,523.80 – 25.70%
These numbers come right from my spreadsheets. It’s important to note that PO #1 was a delivered price, so we had to eat the freight cost (that’s terrifying). In PO #2, freight was covered, but because of shipping delays, our fulfillment cost was higher (and our product cost has increased in the 6-month between each order.
Now, on to what I learned.
What I learned from shipping two HUGE orders:
1. I have awful operations management
The bottom line: to run an efficient operation, production, shipping and warehousing must be in the same location. That not only saves money, but an incredible amount of time. Right now, all three of those are in different towns for us. It’s an enormous time-suck. I’m working with a couple local companies to make this an easier process moving forward.
2. I need better lead times
I can only store so much product in my parent’s basement. We have mustard stacked 12 cases high in almost every square inch. Talk about growing pains. Because of this, I am limited by how much product I can produce (in the kitchen and with storage). I’m working on keeping an inventory level of each flavor that meets large orders and doesn’t wipe me out. At the time of this writing, I’m fresh-out of four flavors of mustard. And yes, this is a good problem to have.
3. Inventory management is a thing
I’m awful at this. I’ve tried countless pieces of inventory management software and none meet my needs. So, I started building my own system in Excel (you can get all of the spreadsheets I use here). To strengthen point #1 above, I have to manage inventory in three different places. It’s a nightmare. My ingredient inventory spreadsheet has helped a TON to make sure I’m only purchasing the ingredients I need for a specific production.
4. Cash is King (Queen and Joker, too)
Inventory is tied to cash. Your labels, ingredients, glass, and finished product are all piles of cash, tied up in physical goods. I’ve often found myself staring at a wall of 3,000 mustard jars wondering, “where is all this going to go?” And magically, it moves in 4-6 weeks. And then the cash comes in 30-60 days later. Cash runs any business. It can also ruin any business. To alleviate some cash risk, many manufacturing companies turn to factoring companies (basically, intermediary lenders) who pay your outstanding invoices within a week. Catch is, they take a 5% cut. But, you have the money now, instead of months down the road.
5. Big orders make you more credible
We’re in select major retailers now. It’s great to boost my own mustard ego, but it also helps to solidify my credibility in the market. Apparently, I’m doing something right. Credibility goes a long way – with big buyers and small buyers. If you show sales are moving in retailers similar to theirs, it “de-risks” the investment on your product. That ultimately leads to shelf space.
Let’s compare that to a recent delivery I made:
- Sales: $150.93
- COGS: ($69.29)
- GPM: $81.64
- OPEX: $22.00 (assuming I paid someone + gas)
- NPM: $59.64
I’d have to sell to that same retailer 26 times to make the same amount of money I made in PO #2 above. And the order above was an above-average order. They order from me roughly 6-8 times a year at an average of $92.88 an order. Here’s how that typically plays out (COGS estimated):
- Sales: $92.88
- COGS: ($30.64)
- GPM: $62.24
- OPEX: $22.00
- NPM: $40.24
At this more typical rate, this store would need to order from me 39 times. That would take 3.5 years to generate the same profit.
Simply writing this down, tells me I need to have a higher minimum order. But, I know this also puts some stores out of the realm of carrying my product. I need to focus on stores who order more product on a more consistent basis – the wildly popular 80/20 rule.
Now, I realize if you had 1,000 stores ordering $92.88 every single month, you’d have a $1.1M business. I shouldn’t be looking at it with a singular focus. However, I’m in over 200 retailers right now. And I can tell you, barely 25% of them order every month – if that. That’s my reality.
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I wrote this article to put my thoughts (publicly) on paper. I’m at a point in my company’s growth where it’s go big or go home. I need to start landing bigger orders or re-working my strategy. It’s no longer little country stores. That’s not where my effort should be spent.
Big accounts = big money. Big money = growth. Growth = Sustainable company.
Who wants to go big time with me?
PS: If you have experience shipping large orders, I’d love to hear your tips as this isn’t going to be the last time I ship multiple pallets of product.
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