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Counting the Cost of a Large Customer

by Chandler 10. February 2010 00:25

Is Big Always Better?

It is definitely an interesting time period in terms of the economic situation. Some “experts” are saying that we are on the way to recovery while others say we have a long way to go before things get better. At this point in time it is difficult to truly determine where the answer lies. If the last couple of years has taught companies anything it is that, as a company, you must always be able to adapt to many different situations and conditions, and be able to change quickly.

 For those of you that were fortunate enough to remember the tremendous growth of the candle market from 1995-2002- you will recall almost any type of candle developed could find a market, and there were some truly remarkable and unique candles sold during this time period. Many candle companies grew with leaps and bounds and started building a fairly substantial infrastructure to support the organization. In some instances, new buildings, new equipment and personnel were added. But then 2001-2002 came and the market started to turn downward and many learned very quickly that it is very difficult to reduce any organization and fixed cost in a very short time period.

If companies or individuals are fortunate to see the next growth of the candle industry in the very near future it is a good time to develop a plan that can not only help support this growth, but also not jeopardize the business if things turn bad quickly. In addition if that next “extra large order” comes knocking on your door, is it right to accept it?

There are very few things more exciting to a business owner than getting that call from a large potential customer that would be equal to your entire production for the next 3, 4 or more months. The natural inclination for many would be to look at what their current best price is and then possibly discount a little more off that price. The next step is normally to do whatever else may be necessary to ensure they get the business. This may be the right thing to do if the circumstances are correct, but in most instances when it is such a big departure from your normal part of business, you need to spend a great deal of time assessing if it right for you. The same logic/calculation applies even if you are making candles in your kitchen/basement and in some instances even more factors need to be considered

While the following will not guarantee that at the end of the transaction it was in your best interest, we hope it will help you make an informed decision:

  • Is the new account going to require you to purchase more molds, equipment or add personnel?  This action will require additional funds to be expended and needs to be calculated into the cost of how long or reasonably long they can commit to you.  The longer the commitment they can give you the more you can amortize the new cost.  There are very few companies that will guarantee purchases past a fairly short time period. You should try to get as much of a commitment as they are willing to consider.   Be sure to get as clear of an understanding as they can give on the arrangement. 

  • If you are a home based business: Is the size of the order going to require you to produce in another place other then your existing location? If so be sure to know all of your cost including your own time in terms of travel, wear and tear on vehicle and if you have to engage child care or other arrangements.

  • What type of payment terms are they asking for? If it is 60 days, then you will need to identify what the cost of carrying that type of receivable is. Keep in mind that few vendors these days rarely are more then 30 days. So, what ever you sell them, in the addition 30 days, has to come from somewhere (it is even a great cost if the large customer wants 90 days). Lines of credit, bank loans and other traditional financing all carry cost. Be sure this is part of the equation. Even if the profit is healthy, (which is not always the case if the order is very large) it is still awhile before the amount you make as a profit covers the cost of taking on the new receivable. In addition, you are continually going to be building Inventory which requires you to outlay additional funds. The Inventory number can become deceivingly high with labels, glassware, fragrance, wax and then the need to store the items.
  • If the order is an ongoing proposition, what, if any, notice will you receive when they wish to stop purchasing from you? Larger orders will take longer to produce, but your customer will want product in a shorter time period, so you will constantly be building inventory. If they end the arrangement on very short, or no notice, you will be “stuck” with a great deal of inventory.
  • What is the financial strength of the customer you will be selling to? The worst outcome for any transaction is the company you start to sell to shuts down soon, or for that matter, anytime you start to sell them. In today's business environment few companies, if any, can survive a large hit on receivables.
  • If the customer is already purchasing candles try to find out why they are considering changing suppliers. Getting a good answer on this inquiry is going to be the difficult area to access. The information you are able to secure may help you understand if the situation is then going to be right for you. Maybe their current supplier went out of business, or unwilling to make a shape design they desire, or they did not like the quality of the product.

While larger and new customer transactions are a part of business everywhere, preparing yourself and making sure you have considered all the costs is necessary to make sure it is the best decision for your particular situation.

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Categories: Business Articles | Candle Busines


Improve Your Candle Line

by Chandler 9. February 2010 21:01

4 Quick Tips to Improve Your Candle Line

Jump start sales and add new products to "reposition/market" your lines. Some of the suggestions can be simple little editions to your line while others may require a little more testing and product development. As all businesses have learned, you are no longer able to just hope that what you were doing in the past is enough to get you through another year.

There are many new and exciting product changes!

Wood Wicks

Without a doubt the most exciting new product to come along recently is the wood wick. The wood wick candle has been out for a few years, but for many, finding quality wood wicks from suppliers has always been difficult. The wood wick is not designed to replace your existing candle line, but is a way to attract new customers to your products.

The wood wick is limited to use in containers, but is great to use with all soy waxes and paraffin waxes. The wood wick can add a nice touch and unique burning property to your candle. Your candles can have that nice crackling sound that people love to read and relax by, but without the need to use the fire place. The wood wick definitely should be considered especially with some new or unique pieces of glassware.

Natural Candle Wax

Natural wax candles are here to stay and if you haven’t tried it yet, now is the time. Soy is great in that it is all natural and produced here in the US which can have some great marketing appeal. A unique way to launch your soy wax line might be to add a line using travel tins. Travel tins are relatively easy to make because the exterior surface can hide many of the blemishes that occur when using glass containers. Tin containers do not break when the heavy shipping season occurs. (Be sure to check out our September 2007 issue on how to make these candles).

Custom Labels

There are many things about a candle that can appeal to the consumer, and one of them is the label. With today’s technology and printers it has simplified the process of making custom labels. Nothing is more appealing to small retailers and manufacturers then to offer items that cannot be found in the mass markets. Custom labels can be a tremendous asset for fundraisers and local craft shows and events. One site that we have always liked for help on custom labels is http://www.avery.com.

Luminaries

One of the new products that we received numerous compliments about, and companies really like the suggestion, is to add luminaries to the line. For those that may not be familiar with this, these are the candles used in downtowns and neighborhoods by lining the streets with Luminaries.

One of the great things about the candles used in this application is they do not necessarily have to be white or a specific color. They can almost be any color because they are placed in the bag. What better way to use wax that may be colored but does not meet your color specifications, or a custom order canceled at the last minute.

Some other helpful hints would be contact the coordinator of the event and ask (in exchange for a discounted price) if you can you apply a label on the bag advertising your company. Be sure to check with various downtown districts and neighborhood civic associations to promote this idea. Many downtown events are in early December and will provide for some last minute advertising. For other items be sure to check out September 2008 issue.

Many of the above can be started with minimal investment.


About the author

Hi I'm Chandler. Thanks for visiting! Illumine is all about helpful projects, ideas, and articles related to candle and soap making and the candle and soap making business.

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The Candlewic Company

Supplies the candle making industry with candle making kits, molds and accessories including candle wax, gel, and wicks.

3765 Old Easton Road
Doylestown, Pennsylvania 18901
800-368-3352 | Local: 215-230-3601
Fax: 215-230-3606

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Official Distributors of: Penreco Candle Gels
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