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June 16, 2017

Do You Take a Candle Making Vacation?

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June 2017
While June may lack the big-splash holiday appeal that the 4th of July, Memorial Day and Labor Day offers, it still has some major implications for many of us in the US. Almost every day for the first half of June, a high school graduation is held. Also, in June, Father’s Day and Flag Day are celebrated, and June 30 marks the half-way point for the year. And, with the kids out of school, many turn their thoughts to summer vacation.

One of the things we have always stressed, even though the candle industry may go on "vacation" during this time, is that candle makers of all levels should use this time to determine how best to maximize the fall candle season.

The next couple of months are a prime time to seek out new opportunities for selling your candles, because most small shops are already planning their fall lines, if they have not done so already.  When reviewing potential opportunities, it is imperative that you develop a plan that can not only help support your desired growth for your business but also will not jeopardize the business if things turn bad quickly. If you are faced with what seems like an opportunity to land the "order of a lifetime," don’t automatically assume it will be just that chance.

There are very few things more exciting to a business owner than getting that call from a large potential customer for an order that would be equal to your entire production for the next three, four or more months. A natural inclination for many would be to look at what their current best price is and then possibly discount a little more off of that price. The next step is normally to do whatever else may be necessary to ensure they get the business. For many of us, if landing this kind of order is a possibility, the decision should be easy, right? However, the answer is not always as straight forwarded as you may think. If the account is a big departure from your normal business, you need to spend a great deal of time assessing if it is right for you. The same logic/calculation applies regardless of the size of your company, and, if you’re making candles in your kitchen or basement, even more factors need to be considered.
 
 
While the following advice will not guarantee success, we hope it will help you make an informed decision:
Is the new account going to require you to purchase more molds and other equipment and add personnel? These actions will require you to expend additional funds, which you need to calculate into the cost of the business arrangement as you consider how long the customer may be able to commit to you. The longer the commitment the customer can give you, the more you can amortize these new costs. There are very few companies that will guarantee purchases beyond a fairly short time period, so you should try to get as much of a commitment as the customer is willing to consider.  Be sure to get as clear of an understanding as possible regarding the arrangement.
If you are a home-based business, is the size of the order going to require you to obtain production space beyond your existing location? If so, be sure to know all your costs, including in terms of your own travel time, wear-and-tear on your vehicle, potential child-care or other arrangements.
What type of payment terms is the customer asking for? If it’s 30, 60 or even possibly 90 days, then you will need to identify the costs of carrying that type of receivable. Keep in mind that, in most instances, you will be paying for all your raw materials at the time you manufacture the candles. Few, if any, vendors are willing to extend terms to smaller candle manufacturers. So, whenever you sell candles for a 30-day payment term (the minimum in most instances), your payment to your suppliers is due now and must come from somewhere while you’re awaiting your customer’s payment to you. (This is an even greater cost if the large customer wants 90 days to pay). Lines of credit, bank loans and other traditional financing all carry costs. Be sure this is part of your equation. Even if your profit ultimately turns out to be healthy (which is not always the case if the order is very large), it will still be awhile before your sales will cover the cost of taking on the new receivable. If you’re using a credit card to finance the new venture, be sure to have a contingency plan in place in case your customer doesn’t pay in the allotted time. You definitely are not going to want to have to pay a late fee and/or interest on the purchases you placed on your card.
In addition, you are continually going to be building inventory, which requires you to outlay additional funds. The inventory volume can become surprisingly high, with labels, glassware, fragrance, wax and other supplies. Then there is the need to store the items.
If the order is an ongoing proposition, what, if any, notice will you receive when the customer wishes 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 the customer ends 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? The worst outcome for any transaction is if the company you start to sell to shuts down soon or, for that matter, any time after you begin doing business. Today, few, if any, companies can survive a large hit on receivables.
If the customer is already purchasing candles, try to find out why the company is considering changing suppliers. Getting a good answer to this inquiry is going to be difficult. What you find out may help you understand if the situation is going to be right for you. Maybe the customer’s current supplier went out of business or is unwilling to make a shape design the customer desires, or maybe the customer did not like the quality of the former supplier’s product.
Although larger and new customer transactions are a part of business everywhere, preparing yourself and making sure you have considered all your costs will help ensure that you make the best decision for your situation.
CHANDLER'S CORNER
I have only sold my candles to co-workers and friends. Is it difficult to sell to retailers?
Hi. I'm Chandler. When calling on retailers, it is always important to find out as much as you can about the retailer's terms and conditions. Many retailers have additional discounts they will take once the price is provided. These include, but are not limited to, advertising allowances, returns, damages and new store discounts. Be sure to know all the conditions before providing a quote.

In addition, you should be familiar with these commonly used retail terms:
  • ROI (Return on Investment) - This is the percentage of return that you get from investing in advertising, equipment or whatever else you've invested in to help grow your business. This is a commonly used term when referring to paid click ads on the Internet.
  • BOGO (Buy One Get One Free) - This is a very common tactic to drive sales for a particular product.
  • Planogram - A layout that illustrates how and where retail products should be displayed (usually on a store shelf.)
  • Margin - This is the percentage between what it costs to produce and sell your candle.
  • Target Market - The defined market the retailer or candlemaker is trying to capture. For example, depending on the store, a target market might be teenagers or housewives.
  • Loss Leader - When a retailer sells an item below cost to drive traffic to a store in hopes that higher margin items will get sold.
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