Qualifying the Right Opportunity (Keys to Unlocking the Most Profitable Shops, Part 1)
Thanks to the changing tech landscape, shops are now more affordable and more flexible than ever, plus, the demand for shops has never been higher! Before I joined commonsku as the Chief Content Officer, I spent years as a distributor focused on the company stores/shop space, after taking hundreds of calls from prospects and setting up many shops, I learned how to quickly qualify the best opportunities, focus on the most profitable ones, and grow those with the most potential. In this series, we’ll discover the keys to unlocking the most profitable shops.
Distributors are damn good at helping their customers with difficult projects. When they get a product request, whether it’s a custom product or a retail trending item that’s not available through industry channels, they are ingenious at finding a solution. This reflex to help, and a distributor’s ability to source strategically is amazing, but it can also be problematic when it comes to shops as a shop is a different kind of sale. Shops are strategic and (usually) a longer-term sell, which can result in residual and long-term profit.
When a customer calls a distributor requesting a product idea, they are almost always going to end up buying something. When a customer calls for a shop, though there is potential for opportunity, the question remains whether the shop will generate profit and how much. I’ll explain further what I mean, but know that this reflex you’ve developed to source anything-the-customer-needs shouldn’t be a quick trigger when it comes to a shop. Remember to pause slightly before you say “yes” so that you can qualify the opportunity, ask the right questions, and determine whether it’s profitable to pursue.
The first key we’ll explore in this series on unlocking the most profitable shops is how to spot the most profitable opportunities.
Types of Shops
Shops come in all shapes and sizes and are set up for all types of organizations: schools, non-profits, insurance, finance, industrial, camps, franchises, associations, tech, and more. There is no one particular industry better than another but I loved B2B service industries (financial, insurance, or franchises that were service businesses), but some distributors excel in the tech sector; others excel in medical, but the list of potential opportunities is endless. To give you an idea of some of the excellent opportunities for a store:
Your client's head office wants to offer a set of pre-approved products for multiple departments or locations to order.
Sales teams that are spread across the US to easily order from a select group of products.
Easy ordering shop for the HR Department to restock items (welcome kits) when low.
For an insurance, finance, or tech company who wants to control the products offered to colleagues.
Franchise systems that require complete control over the branding.
Employee apparel programs: Employees can order their shirts and sizes and these orders will combine into one easy-to-produce sales order.
Camp Programs - campers select their items before camp starts.
School Programs - students select merchandise before the school year.
Safety or Incentive shop - Reward for safe work, or use it as an award for a sales incentive program.
Celebration gift: Set-up a pop-up shop to gift employees one item, allow them to select the item they want and then produce the order!
Qualifying a Profitable Shop
Shops represent a real opportunity for those who want to provide their customer with a purpose-driven solution but they can also be a vortex of activity and low-to-no profit if not carefully vetted.
The best way to remember how to qualify is the acronym BAM: budget, authority, motive. Does the customer have the authority to make decisions regarding a shop? Most shop decisions are made by a small committee, even if it’s a committee of two people, what is their place on this committee? Do they have final authority to make a decision or are they simply an information-gatherer?
Do they have the budget for a shop and for merch? Budget means not just “how much have you allocated for your store and merchandise?” but budget is a way to size up the opportunity. For example, if they are a company with 100 people and they want a shop to give every employee a jacket and also provide some additional apparel, you can estimate that this would be a $5,000-$7,000 opportunity. Knowing that this is a $2,000-$3,000 profit opportunity tells you that you shouldn’t invest much more time setting up a shop than you would taking an order, in other words, very light tech set-up and management.
But the most essential question is about motive? Motive is the most important qualifier when vetting an opportunity. The simple but key question is:
Why do you want to do a shop?
The best shop opportunities come from those who recognize the value in their brand and from those who understand that a shop is an opportunity to cultivate brand champions, whether it’s a retail shop for a camp or an employee-shop or a dealer/franchise shop: the best shops are those who recognize the potential of branded merchandise.
We once had a client who allocated $600 per employee for branded apparel. Why? The CEO recognized the power of the brand and understood how branded merch creates an emotional connection that inspires tribalism. Another client of ours was a credit union and they allocated $150 per employee per year for “uniforms,” which were simply polo shirts and jackets. Why a customer wants a store is the most important question you can ask, and when you do, you’ll discover red-flag and green light responses.
Red-flag responses around “the why question” are:
“We want to do a store because it would be cool to have one.”
“I’m new in this role and we had a store before and I think it would be a good idea to have one here. I don’t know what we’ll do with it yet but I’d like one.”
“Our employees are asking for merch and we think it would be a good idea to give them the opportunity to buy some.”
They are red flags only because they haven’t identified a brand problem they are trying to solve. For example, the prospect who says, “I’m new to this role and want a store” wants a store for the wrong reason. (The term “ego store” has been coined for exactly these types of stores, great for the brand ego -or the ego of the buyer- but no real purpose).
“Our employees want to buy some merch with our logo on it” is also a red flag. Less than 5% of an organization’s employees will spend money out of their own pocket to buy branded merch, no matter how cool the company! To put that into perspective, out of 1,000 employees, 50 will buy that t-shirt, which is about a $300 order.
Some of my favorite green lights that signal a good opportunity:
“We want to provide a shop for our employees and we’re going to allocate some funds for each employee to get their own gear.”
“We want to provide a shop for our team to order pre-approved items but we don’t have the bandwidth to manage it and would love to find a partner who can help us.”
“We don’t have a simple way to gift our VIPs and we need a simplified solution to make it easy for them.”
“We’re going through a logo change and we want to gift everyone with items featuring the new brand.”
The reason I love those responses is that they are very purpose-driven. The reasons around “branding” and “bandwidth” and “simplified solution” means they are seeking a partner to help them develop its full potential, they need you as the solution provider and the merchandise expert to inspire them with the right ideas and to manage the process on their behalf.
“Budget, authority, and motive” is a quick way to vet a shop opportunity. But don’t stop there, to really qualify, you need to dig deeper. Though there isn’t one set of questions for every shop, you can use a framework to ask the right questions.
Here’s an example of some questions I helped build for a distributor who had a prospect come to them for a shop opportunity. The opportunity was for a private school (so far, so good, private schools usually have a decent budget) but I wanted to dig into their purpose, potential annual profit, and mostly, I wanted to uncover the actual activity they could expect from this shop (i.e., how much time they would be investing in its creation and on-going maintenance):
What's the annual budget for this category? (If they won't tell you, be prepared to walk away. If they say, "we don't really know yet,” which could happen because they are ridiculously well-funded or because they haven’t done this before, then the following questions might help guide you as to a best-guess).
Another way of asking the budget question: Have they allocated a budget per student for this project?
Key question: Are uniforms required? If so, that’s a good sign. Better yet: Are they subsidizing some or all of the cost for the apparel or are students and parents paying 100% of cost? It's a key question because if they are subsidizing part of the cost, that will increase the demand. If this is based on pure parents and students purchasing at full price, it will likely always be a price/cost issue on the apparel, plus result in less orders for you. The fact that it’s a required uniform program is a plus, but doesn’t necessarily mean they need you for your excellent service and merchandising skills, you can be easily shopped if they also don’t need you as a service provider.
If they don’t know the budget question yet: How many students do you anticipate in your program for the first year? Second year? From there it will be easy enough to guess uniform demands. (If this was an employee program or a dealer program, the same question about “number of employees or dealers” applies, including their percentage of churn).
Since they have been in operation for a few years, they've no doubt tried some things for their apparel, revealing questions would be: What has worked? What hasn't? What were previous orders like in terms of volume and frequency? The main reason I these questions is to provide value for scale but I'm also vetting profitability, volume, and admin demand on you and your team.
How will the purchasing be conducted? By season? Quarterly? Every six months (that would be my suggestion: fall/winter, spring/summer)
Will you inventory these items at your location? What role do you see us playing in this shop opportunity? Shop creation + merchandise? How will orders be fulfilled to the end-user?
Crucial question, one of the most important: How will they market the store? Will this serve as a link on their website? On their intranet/internal site? Marketing is one of the biggest keys to a successful store, not just your marketing through successful merchandising but how will they communicate to end-users? Do they have a plan to frequently advertise the shop to their constituents?
When do they anticipate launching this shop?
Brush off those interrogative pronouns and ask the “who, what, when, where, why, and how.” Many times, your buyer won’t know the answers right away but they can try and find the answers, it sometimes takes a little back-and-forth and discovery on both sides.
Also, I had a rule I abided by: answers-before-commitment. I would walk with a client all the way through the discovery process, knowing full well I could back out if the opportunity wasn’t right for us, the key was to be curious and vigilant and uncover as much as you possibly can about the possible activity.
One of my favorite examples of an excellent store opportunity was when a large industrial company wanted a safety rewards program. It was simple: Provide only six different products for each employee to choose from and within 90-days, the employee has the opportunity to select one item. Once the time is up, we collect the orders, place the order with each of our six suppliers, and ship all the products to the headquarter’s office for distribution. It was clean, simple, highly profitable (the unit price was for a premium product), and it resulted in a $150,000 program. That’s the pinnacle of shops and a secret to remember: if it’s too complicated, it’s likely an opportunity to stay away from if you are not a full-fledged fulfillment operation and don’t already have the infrastructure to support something complex (unless you can outsource it, we’ll provide more info on outsourcing in a future article). But there are great opportunities out there, you just have to be patient and learn how to vet the right one for you.
Another one of my favorite shops was when an insurance client of ours made the Fortune 100 Best Companies to Work For list, a huge achievement. They wanted to gift each of their 1,800 employees with a commemorative shirt to celebrate. We created a shop and allowed every employee to select their size. Once we had all of those orders in, we produced the order and delivered it to the company headquarters. We ended up doing that program for them again and that insurance company has made the Fortune list over thirteen times now. A shop like that is easy to set-up, the delivery is straightforward, our role in it was highly valued by the customer because we made the process simple, and the residual income was sweet!
Lastly, and this is so simple, but it’s often the biggest mistake I see distributors make: never set up a purposeless shop. For example, with commonsku’s shops, it’s easier than ever before to set up a shop, but don’t just set up a shop for a customer hoping they will use it. Why? Everything you do for a customer should purpose-driven. If it’s not strategic and doesn’t solve a problem, it’s almost always a waste of your time and worse, reduces the value of the service you provide. Resist the temptation to build a shop for a customer with no purpose, just like with the right type of client, you want to focus on the right type of store opportunity for you.
Shops can range from the easy-as-a-presentation type to the most complicated model imaginable, with print, promotional products, multiple check-out options, and much more, but there are best practices that can be applied to every opportunity. In our next installment, we’ll dig into pricing details, including service fees, technology fees, and more, stay tuned!
commonsku has three amazingly simple types of shops to fit your needs, a Marketing Shop, Pop Up Shop, and a Company Shop, for more information, check out our shop options here.