Biz Tips: The Business Benefits of Buying Directly From Manufacturers

Biz Tips: The Business Benefits of Buying Directly From Manufacturers

Biz Tip:

The Business Benefits of Buying Directly From Manufacturers

The direct-to-consumer model can help companies cut costs and develop mutually beneficial relationships with manufacturers.

For business leaders, minor expenses can add up quickly. Remember that free 30-day trial of software you tested to see whether it would help you with Google Ads or invoicing or — whatever? I’ve probably paid for a year of unused software in this situation a dozen times. And that’s just one example.

There are plenty of runaway expenses if you don’t keep your eyes peeled for them. In a survey regarding the biggest financial challenges for business owners and managers, 35% of respondents ranked unforeseen expenses as their top pain point. Unexpected expenses or unexpected losses of revenue can cause severe problems, such as lawsuits, theft, damage, large customer returns, broken deals, etc.

Force yourself to sit down a few times a year, look at your expenses, and evaluate how they’re breaking down. Is there a pie slice of expenses that seems way too large? Look for ways to reduce the size of that slice. Luckily, many companies are saving money on a wide array of business expenses by moving to a direct-to-consumer model.

Being for the Benefit of Businesses

Companies like Away, Glossier, and The Honest Company are using the internet to skip retail and go straight into customers’ mailboxes. These companies and other direct-to-consumer brands have started to overtake some industries — their sales represented 13% of e-commerce sales after increasing by 34% in 2017.

Beyond traditional retail, some surprising industries are jumping on the direct-to-consumer bandwagon.

Wholesalers were an entire industry on their own, acting as the middlemen between consumers and manufacturers. By purchasing items at bulk prices and then selling those items to consumers at a higher rate, wholesalers were able to double or triple their profits. This happened for decades because manufacturers didn’t have another way to get their products to the customer — wholesalers provided retail space, infrastructure, and labor to get products off the ground.

With the direct-to-consumer commerce model, however, manufacturers are getting out from under wholesalers. One such product gaining traction in this space is LED lighting. LED lighting is new, but the general lighting industry definitely is not. The business structures of LED lighting are dominated by some fairly archaic structures and byzantine distribution channels, with plenty of channel conflict and layers of markups as the product makes its way through the chain to the end user.

Consider the territorial sales representatives for most of these businesses. If there’s a potential lighting deal but it’s in another representative’s territory, you often have to get your price on the lighting from that rep — even if that rep works for the same company. Given that they’re territorial, they quote you a high price, so you lose the deal. But the real loser is the company itself.

Offering directly to businesses without regional distributors, supply stores, or regional representatives marking the price up along the way can keep costs down for end users and maintain the overall quality of the product.

My last business, a solar company, took the in-home sale of residential solar power and turned it into a phone-based sale. The phone-based model had an immensely superior cost structure to rolling trucks out and walking around on roofs just to get a “no.” This was made possible with some relatively simple technology, but solar leases also came about at the same time. Those leases allowed salespeople to offer immediate savings with no out-of-pocket expense.

If you’re buying products for your business regularly, check to see whether there’s an option to buy directly from manufacturers. The cost savings can be significant and could potentially make your budgeting easier.

Pros and Cons of Going Direct

In general, it’s a good choice to buy directly from a manufacturer. The pricing will be better, it will be easier to get warranty replacements, lead times will be more reliable, and you can be more confident that you’re getting what you ordered.

The only caveat would be if your distributor offered an ancillary service that is either critical to your business or worth the markup. If you’re considering buying direct, ensure that the manufacturer has the right infrastructure in place to get you the product on time — some companies just don’t have the staff to handle direct purchases.

If you are buying a product directly, leverage the direct line you have with the manufacturer. If you have questions about how to use a product or need tweaks to make it work perfectly for your business, talk to the manufacturers. They know these products inside and out, and they can be the ideal advisor to help you maximize the product’s benefits.

Today’s economic expansion in the U.S. is one of the longest we’ve ever seen. Manufacturers can make it last even longer. How? Through continued innovation. And that benefits everyone — especially your wallet.

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