As you embark on the CPG journey it is vital to have a clear vision of what outcome you are looking to shape. Your goal might range from make a living, to a side business while you keep your day job, to selling you company in 3-5 years to a large CPG company at a crazy, high price. Before you go too far and mortgage your house and invest all of your savings, it is important to think through the following questions objectively before you dive in.
Is what I am offering truly innovative and meaningfully differentiated?
While you are presenting yourself and your products to prospective partners, your buyer, broker, distributor, and investors are asking themselves, “Is this product truly differentiated and going to drive growth in its category? Or is it just a ‘me too’ product?”.
You will need to hone your sales pitch of where you believe you fit in the category.
- How do you want your product to be viewed in comparison to the other products in your category? Will your product be a premium, parity or a value-priced product?
- Does your product attract a new consumer because of its innovative features and benefits?
- What is your strategic value to the retailer?
Work through this pitch so you are confident enough to sell your product and brand at every opportunity you come across with a retailer.
Do I have rewarding and forgiving gross margins?
A gross margin represents the percent of total sales revenue that your company retains after incurring the direct costs associated with producing the goods you sell. The higher the percentage, the more your company can retain on each dollar of its sales. So, establishing an adequate gross margin will give you a fighting shot at profitability and having a sustainable business.
Here is how to calculate gross margin:
Gross Margin (%) = Revenue - Cost of Goods Sold
If you’re a food or beverage company, your gross margin target should be 40%+ with the guiding principle being the more the merrier. For other product categories, it is okay to be in the mid 30’s with a line of sight to 40%+ with reasonable scale. If your expected gross margin is in the teens or 20’s it is time to go back to the drawing board to reformulate or reconfigure the product.
Establishing a reasonable gross margin allows you to invest in your brand, it gets you to break even more quickly and ultimately minimizing funding losses and dilution of ownership by avoiding capital raises necessary to fund operating losses.
Have I cracked the code of knowing what it takes to sell off the shelf?
Early on, ideally in your home market or backyard, you will want to understand what it takes to sell off the shelf. This means validating your key assumptions on variables like: optimal price point, where to merchandise, how to promote and demo, and how to tell your story to the trade and consumer. Once you crack this code you can expand into new regions with the confidence that “if I do A-B-C-D, it should take root and take off.”
Part of what makes you an entrepreneur is the desire to be rambunctious and just get out there and do it with the temptation to figure it out as you go. We would urge you to walk through these basic feasibility steps so if you need to, you can refine and modify your offerings and approach early on thereby avoiding expensive mistakes, lost time and ultimately hedging for success. Good luck!
About the Author
|As a consultant since 1998, Bob Burke provides assistance in bringing natural, organic and specialty products to market across most classes of trade. He is also the co-author of the Natural Products Field Manual, Seventh Edition, puts on sales, financing and operations seminars and serves on a number of boards and advisory boards. Prior to consulting he was VP of Sales and Corporate Development for Stonyfield Farm. Please see www.
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