fcakes Posted 17 Apr 2013 , 6:50pm
post #1 of

Hi!

So I have an offer from a wine shop that wants to have me sub-lease a space in their store to set up my table with some display cakes, brochures, portfolio etc and maybe sell products (cupcakes, cake pops, choc-covered Oreos) as well.

 

They are giving a price of $500/month and said I'd have to get my tables and everything to set up a display and they will market for me, generate interest, and possibly have products for selling at their weekly wine tastings (have about 100 people attend that). They would add my products to their POS system in a separate category and give me the amount for whatever product sells.

 

I am not too keen on doing this because the risk will be entirely mine. I am more interested in selling them products at a wholesale price, or something slightly lower than what my retail price is, and have them sell it. They also do gift baskets and carry items like cheese, biscotti, chips, crackers, so my products could be a good fit.

 

What would you all advise? Thank you!!

 

Oh, and I am licensed, inspected and insured, so hopefully, it shouldn't be an issue?

17 replies
DanaG21 Posted 17 Apr 2013 , 6:57pm
post #2 of

Go with your gut.  Would they let you come in a few times to see how well your product moves?  What do the numbers say?  Could you sell enough to cover your costs & the rent and make a profit?  It could possibly be a great move for your business.  Just make sure you are continuing to look at all possibilities of what could go wrong as well and have a plan for that.  Good luck - let us know how it goes!

liz at sugar Posted 17 Apr 2013 , 6:57pm
post #3 of

Sounds like $500 a month for advertising to me.  Depends if they can reach 500 or 5000 people a month, to know whether it is worth it or not.  Your newspaper/radio/tv rep can tell you how much their ads cost to reach an individual person, and then you could compare.  I think it sounds expensive, but it totally depends where in the world you are, and how much traffic they get.

 

Liz

liz at sugar Posted 17 Apr 2013 , 7:00pm
post #4 of

Sorry, I re-read your post and you will be stocking them and selling product.  I thought you were just advertising custom cakes.  Again, depends on how many people they get, and what kind of sales they can produce.  Can they sell $5000 worth of your product a month?  That is the number I would be looking at to make $500/month worth it.

 

Liz

jason_kraft Posted 17 Apr 2013 , 7:02pm
post #5 of

AThat might not be a bad deal if they give you 100% of the retail price. You would need to put together some estimates for monthly sales volume and see whether you get more profit from (retail price * monthly units sold - $500) or (wholesale price * monthly units sold).

LKing12 Posted 17 Apr 2013 , 8:09pm
post #6 of

Unless they are an extremely high dollar generating business, this seems like a very high overhead for you.  I would ask for a three month trial first to see what kind of revenue they can pass on to you.  Once you calculate, delivery, set up, loss of product from no sale or expiration of product, you would have to sell a lot of merchandise.  I truly would prefer to wholesale items to them and fill their orders rather than run an offsite business, that someone else has control of display and safety of my product. 

jason_kraft Posted 17 Apr 2013 , 9:34pm
post #7 of

A

Original message sent by LKing12

Unless they are an extremely high dollar generating business, this seems like a very high overhead for you.  I would ask for a three month trial first to see what kind of revenue they can pass on to you.  Once you calculate, delivery, set up, loss of product from no sale or expiration of product, you would have to sell a lot of merchandise.  I truly would prefer to wholesale items to them and fill their orders rather than run an offsite business, that someone else has control of display and safety of my product. 

Let's say OP sells products for $4 each retail and the wine shop has a 40% markup. If OP sells 500 items per month, gross income with the sublease would be (500 * $4) - $500 = $1500. With the same order volume and a wholesale arrangement without the sublease, OP would get $2.86 per item for a gross income of $1430.

To find the breakeven point for volume above which the sublease is more profitable, solve this equation for volume: (volume * retail price) - 500 = volume * (retail price / (1 + markup percentage))

Whether or not you have a sublease, the retailer has control over how your product is displayed and handled, at least within the terms of your contract. Of course the other terms of the contract (such as what happens to unsold products) will also impact the equation.

The other piece of this deal is the advertising exposure, and if the retailer would be willing to give the same amount of advertising space without a sublease.

Stitches Posted 18 Apr 2013 , 2:19am
post #8 of
Quote:
Originally Posted by jason_kraft 



To find the break even point for volume above which the sublease is more profitable, solve this equation for volume: (volume * retail price) - 500 = volume * (retail price / (1 + markup percentage))

 

I'm feeling pretty slow mentally tonight...........can you plug some numbers into that Jason....I'm not understanding your equation.... (I did love your first example, it really was a great point!).

 

I strongly suggest selling product to them wholesale and not getting tangled in any small business details with them. I've been there/done that, it doesn't work to run another business with-in someone else's. When your a partner with-in your own business at least you get your say 50% of the time. When your not a partner running a business under someone else's roof, you have no real voice.

 

You can't really let someone who doesn't intimately understand your business market you. They'll tell people incorrect information. They might misquote pricing, scheduling and your abilities. It almost puts you in the position of being their employee because they'll be steering your boat.

 

I had my items on the other company's POS, but there were giant discrepancies over the amount of product sold daily. Their receipts didn't match my inventory so I constantly was loosing money. Not that they were deliberately stealing, because they weren't............but their employees often rang things wrong. POS systems are only as accurate as the people using it...sometimes the employees would forget to ring things, sometimes they did so under the wrong codes which didn't give my business the credit for the sale, etc...

 

If the wine shop buys your products out right, they'll be darn careful not to waste product or loose sales. If they don't have any money on the line handling your product they won't handle it with as much care as they do their own products.

jason_kraft Posted 18 Apr 2013 , 3:12am
post #9 of

ANo problem, algebra is fun. :lol:

Assume retail price = $3 and markup percentage is 35% (0.35).

(volume * retail price) - 500 = volume * (retail price / (1 + markup percentage)) (volume * 3) - 500 = volume * (3/1.35) (volume * 3) - (volume * 2.22) = 500 (3 - 2.22) * volume = 500 volume = 500/(3 - 2.22) = 500/.778 = 642 units, so if you sell more than 642 units you are better off with the sublease with these assumptions.

You can easily model this in Excel and put together some what-if scenarios by using this formula for volume: monthly lease amount / (price - (price/(1 + markup percentage)))

Alternatively, if you already have a good idea of the monthly volume you can expect, you can use this formula to find out the breakeven lease amount: volume * (price - (price/(1 + markup percentage))). Using this information you can try negotiating a cheaper lease if you think the volume will be under your breakeven.

cakefan92 Posted 18 Apr 2013 , 3:26am
Quote:
Originally Posted by jason_kraft 

No problem, algebra is fun. icon_lol.gif

 

 

 

Jason, I knew I liked you.  The day I made this statement to my kids was the day they knew good old Mom was insane.

Stitches Posted 18 Apr 2013 , 2:08pm

Oh good god.........now I'm really feeling old and dumb! The last time I did algebra was about 35 years ago.... Could you dumb that down any further for the really slow people, Jason? Please.......

fcakes Posted 18 Apr 2013 , 2:15pm

Thank you so so very much!!!!!! I really appreciate all you input! :) 

Yes, they said I get to keep 100% of the sales I'd make. But again, like some posters mentioned above, I am not sure how they would handle inventory and if they would mess up ringing up the items. The risk would entirely be mine.

 

They said I'd have to get my own tables, decor, display cakes etc and put out my cards, portfolio and a book where people could leave info if they want to special order.

 

The $500 price is negotiable, so I am leaning more towards maybe $200? Not sure if they will agree. Thank you Jason for the example!! I don't think I'd sell 642 units at all!!! Or even 500 units. They recently opened shop, 4 months ago, and have about 100-150 people attend their tastings on weekends and weekdays are pretty empty. 

 

They said they are expanding into the weddings business and having tastings for brides to get drinks for the reception, so my cakes would also probably sell alongside. They have a newsletter database of 200 subscribers (I have about 850 subscribers in mine), and they would advertise and get word out through the newsletter and also through their radio and newspaper ads.

 

Still not sure what to do. For example, if I sell maybe 100 cake pops at $2 each, I'd make $200 gross a month.... not sure what to expect!

fcakes Posted 18 Apr 2013 , 2:17pm

Oh, and algebra is totally not my thing... I prefer arithmetic and maybe a bit of geometry! lol!! If you could simplify that a little, it would be great! :D

Stitches Posted 18 Apr 2013 , 2:20pm

Back to the OP: $500. per month should give you x amount of square footage in their shop. The more space you have, the more product you can market/sell in that space. I'd bet the amount of space they are giving you at that price would be at least $30. per square foot....which is more then it would cost you to rent your own place (minus start up costs).

 

In return for the $500. rent how much window space and signage will they give you? If you don't get any signage out front, you don't exist in the eyes of the world passing by.

jason_kraft Posted 18 Apr 2013 , 3:06pm

A

Original message sent by jason_kraft

(volume * retail price) - 500 = volume * (retail price / (1 + markup percentage))

To simplify this: we are basically comparing how much revenue you can expect with a sublease vs. a more traditional wholesale relationship, assuming all else is equal.

The left side of the equation is revenue from the sublease. Since OP will be keeping 100% of the retail price, revenue is just the number of products sold * retail price, minus the sublease cost. The right side of the equation is for wholesale revenue. The wholesale price is equal to the retail price divided by (1 + the markup percentage), so revenue is number of products sold * wholesale price.

If you want to solve for a single variable (such as volume), you can use algebra to manipulate the equation such that volume is on one side of the equal sign, then plug in the rest of the data to solve it.

So using the modified equation with new assumptions (lease = $200, retail price = $2, markup = 35%): volume = monthly lease amount / (price - (price/(1 + markup percentage))) volume = 200 / (2 - (2/1.35) = 200/0.52 = 384 units

The fixed sublease amount works in your favor when price, markup, and volume are higher. If price and volume are low the sublease amount will also have to be low to make it worth your while. Turning the equation around and assuming volume will be 100 units, you can find the breakeven lease cost: lease cost = volume * (price - (price/(1 + markup percentage)) monthly lease cost = 100 * (2 - (2/1.35)) = 100 * 0.52 = $52/month

With a price that low it looks like the sublease probably won't be the best option. The question then is how much are you paying yourself and taking as profit by selling cake pops wholesale for ~$1.50 each.

Stitches Posted 19 Apr 2013 , 6:59pm

Sheesh Jason........didn't I read somewhere that you have a child? Any chance you could pretend your explaining this algebra to a child?????.......cause your still leaving me perplexed understanding your equation............sorry, I guess I'm even slower then I realized. I know it's something I should understand and need to, but I don't.

jason_kraft Posted 19 Apr 2013 , 7:15pm

AI have a 2-year-old daughter, and she's pretty smart, but for now algebra is a little over her head.

What specifically about the equation did you need to have clarified? At a conceptual level, we are just comparing how much money OP will make selling products at a certain price in two situations: with a sublease or selling wholesale. This can be used to determine which situation is more profitable for the OP by using different assumptions for sales volume and sublease price.

fcakes Posted 23 Apr 2013 , 1:20pm

Thank you so much for everyone's input!! Really appreciate it!!! I think for now, I am going to the wholesale route and suggest it to them. They were more keen on the sublease part, so it might not work out. Let's see...!

Quote by @%username% on %date%

%body%