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February 21, 2013

Using Brokers To Get Retail Accounts

food brokersAs I mentioned earlier, selling directly to the stores is just one of the wholesale pieces.  Today we’ll look at the role of brokers in the food world and what happens to your pricing when they enter the equation.

For those small businesses that want to get to open up wholesale accounts the biggest thing holding them back may be finding the time to actually go out and meet the appropriate buyers.  You have to identify which stores you want to be in, contact the right people, find time to meet with them, tell them about your product and share samples, and then – if things go right – perhaps you’ll open up one new wholesale account.  Now onto the next….

You can see how this can be time consuming and, for many small businesses, hard to accomplish on a larger scale in addition to all the day-to-day aspects of running your business.  So if you want to sell wholesale to a number of businesses you have get more bodies to help you.  This is where a broker may come in.  Brokers act, essentially, as a sales person for your team and help get your product in front of buyers.

food brokers

Of course brokers don’t take your product with them on sales calls just because they’re nice people.  They may include your product in their portfolio and show it to retail stores but whenever they sell your product into a store they will – usually – take a commission on that sale.  This means that you present the broker with your wholesale price and they don’t add anything on top of that when sharing the price with the buyers/wholesale accounts.  Instead, they will bill you afterwards for an agreed upon percentage of the sale.

Let’s see an example.  Taking our wholesale price from yesterday of $5.56 if you and the broker had an agreement that the sales commission was 10% then whenever the broker sold your product into a store you would owe that broker $.56 for each unit.  This is where you can start to see why you need healthy wholesale margins because its easy for them to get squeezed.

Since we’re really just focused on pricing this week we’ll take a more in-depth look at the role of brokers another time but for now it’s important to note that the commission you determine with a broker can vary widely so you’ll want to put on your best negotiating hat when talking to them.  Also, while many brokers do not require an upfront ‘signing fee’ or monthly retainer there are some that do.  This isn’t necessarily a reflection on whether the broker is good or bad but just their way of doing business.  So, as always, when you’re talking with brokers you’ll need to determine what financial arrangement will work for your business and don’t be afraid to negotiate hard for your own best interests.

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2 comments on “Using Brokers To Get Retail Accounts

  • Jack Czarnecki on said:

    Actually, broker commissions are pretty standard at 5% when delivery is to a distributor. This goes to 15% when the producer and/or the broker brings the units directly to the retail outlet. Also, brokers can be a good source for finding distributors.
    However, when a broker wants a retainer or up-front fee it usually indicates that most of his placements will want free fills or slotting fees. The more successful the latter type of broker is, therefore, the more likely you are to go broke by giving away tons of product. You will also be asked to pay for any advertising or other promotional costs by the retail outlet or chain. This, in a nutshell, is how easy it is to lose your shirt in this business.

    • smallfoodbiz on said:

      Jack,

      You’re correct. In this instance I was mainly focused on when the broker opens the accounts but doesn’t work with a distributor (ie, either the broker or producer is responsible for delivery) which is how many small food businesses initially start when it comes to brokers which is why a higher rate was quoted. Though, as you pointed out, that rate can vary widely depending on a number of circumstances. Additionally, as you pointed out, there are a whole host of ‘add ons’ that can cost you the producer money. I plan to write another article down the road that looks at some of those other aspects of working with brokers and distributors (both the good and the bad) as I didn’t want to complicate the ‘pricing’ discussion by adding too much into one piece. As always, any thoughts or insight you have to add based on your experience is always welcome.

      Thanks so much!

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