Your product-based business’s success, profitability, and scalability will be highly influenced by the choice of sales channels and the route to market. Decisions about where and how to sell your product impact your customers perception of your brand, margins, customer reach, and growth potential.
In this blog, we’ll highlight key considerations for product-based business owners when determining their sales and distribution strategies. For deeper insights, listen to Bruce Watson’s interview on the Obsessed View podcast, where he shares valuable lessons from his journey of launching and scaling his hot sauce business.
Choosing the Right Sales Channels
The sales channel you choose is a critical factor in profitability. Whether through direct-to-consumer (D2C) online sales, physical retail, or marketplaces like Amazon, each comes with its own set of challenges and advantages.
1. Direct-to-Consumer (D2C)
Selling directly to customers through your website gives you the most control over branding, customer experience, and profit margins. However, you’ll face challenges in driving traffic and managing logistics. Bruce of HootSauce relied on organic growth, avoiding paid marketing, which allowed him to stay in control but made scalability harder.
2. Retail and Wholesale
While retail provides an opportunity to scale quickly, it can lead to lower margins and reduced control. Retailers often demand bulk discounts, impacting your profitability. In this episode Bruce turned down major deals with Selfridges and other large retailers due to unfavourable contract terms that included returning unsold stock. Retail can offer high volume, but at significant risk.
3. Marketplaces and Third-Party Platforms
Platforms like Amazon or Etsy offer access to massive audiences but come with platform fees and reduced control over customer relationships. Your product may also face stiff competition, leading to thinner margins and potential price wars.
Key Considerations for Profitability and Scalability
Margins and Pricing Strategy
Your sales channel affects your profit margins. Retailers, for instance, require discounted wholesale prices, forcing you to lower production costs or increase volume to remain profitable. Bruce’s hot sauce business scaled to thousands of bottles but struggled with profitability due to production and distribution costs.
Volume vs. Value
Large retail contracts may seem appealing, but as Bruce learned, they come with hidden risks like unsold inventory and tight profit margins. Smaller, high-value products often offer a more sustainable model. Bruce positioned his hot sauce as a premium product, but maintaining this while balancing costs and scalability proved challenging.
Production and Supply Chain
Consistency in production and an efficient supply chain are key as you scale. Managing cost-effective sourcing without compromising quality can be difficult. Bruce faced issues with scaling up without losing the quality of ingredients that defined his product.
4. Marketing and Distribution Costs
Marketing and distribution are significant cost factors. Bruce Watson avoided paid ads, relying on organic growth through his network of chefs and restaurants. For others, however, investing in marketing may be necessary for building brand awareness and driving sales in competitive markets.
5. Ethical Considerations and Long-Term Goals
Aligning your business model with your values is essential for long-term success. Bruce refused to compromise on ingredient quality or ethical sourcing, even when presented with lucrative retail opportunities. This ethical standpoint limited his scalability but kept him true to his brand’s vision.
Final Thoughts: Your Route to Market Shapes Success
Your chosen sales channels and distribution strategy will largely determine the profitability and scalability of your product-based business. Whether you go direct-to-consumer or explore retail and wholesale options, balancing profitability with long-term scalability is essential.
For more insights on the entrepreneurial journey, listen to Bruce Watson’s full interview on the Obsessed View podcast, where he shares valuable lessons about launching and scaling a product-based business.
Thank you to our Sponsor Constant Contact for making this episode possible.