I’ve been privy to a few discussions lately on terms—the conditions you establish for your customers to do business with you.
Terms include
· Minimum order/reorders: What is the smallest order you will accept to start a relationship with a new customer? (This can be a dollar amount, a number of items, or a combination of both.) No minimum? $150? Six items? A low minimum invites prospective buyers to take a chance and experiment with your work. A high minimum forces them to make a strong commitment to your work. Decide what strategy you prefer—neither is “right” or “wrong”, just what works for you and your products. Some artists require a minimum initial or opening order, with a lower (or no) minimum on reorders. Others require a constant minimum for every order.
· When you are to be paid for your work: prepaid at time of shipping? C.O.D.? (Customer sends a check when they receive the order.) Net 30? (Payment of full invoice within 30 days of receipt or date of invoice.) 2%10/net 30? (Buyer can take a 2% discount off the invoice if they pay within 10 days, but otherwise full payment is expected within 30 days, etc.) Are there penalties for late payment? Consequences? (e.g., do net 30 accounts who consistently pay late get put back on prepaid status?)
· How you are to be paid: Check, money order, bank check, credit cards, and increasingly, on-line services like PayPal, etc. (Cash is usually not acceptable because there is no paper trail in case of dispute; money order and bank checks are a hassle and used infrequently. Credit cards make it easier for everyone and are faster than checks, but you must factor the extra cost into your pricing.)
· How you will ship: Some artists offer options (U.S. Postal Service, UPS, FedEx Ground, etc.), others don’t. BTW, it is customary for retail buyers and wholesale buyers to pay all shipping costs. Only in consignment is that up for much negotiation--and then you usually pay to ship to them, they pay to ship work back to you.
· How you determine shipping charges: Some artists charge a handling fee, others charge only the actual shipping charges (with or without insurance, etc.) Packing a chest of drawers requires a lot more effort and resources than shipping a pair of mittens.
· Your return policy: If you don’t state a returns policy, then the default may be determined by your state’s rules and regulations for commerce. If you state your returns policy, then that is what the customer agrees to when they purchase. You can accept no returns, no returns after a certain number of days, returns for work damaged in shipment only, returns with a restocking fee (typically 10%-25% of the value) or you can accept unlimited returns. Things to consider are: How good has the customer been as an account, and how hard will it be to turn around and sell the returned work again?
· Custom orders/special orders/made to order: Loosely interpreted to mean anything from tweaking a design you already make for a specific customer, or making something entirely new but within your production parameters. At least a 50% prepaid balance is customary, with the remainder due at time of shipping. Some artists ask for a design fee (ranging from 10%-20%) whether or not the work is actually commissioned. Most custom orders are not returnable, exchangeable or revisable, although some artists offer a one-time alteration or “re-do” if that will make it right.
· Warranties and guarantees: What protection and/or assurances do you offer the customer that your work is well-made and gives reasonable value?
People new to selling their craft struggle with how to set up their terms. And there’s often a stage (whether new to selling retail or new to selling wholesale) where they may be tempted to operate out of fear. They see and hear the horror stories of dealing with customers—people trying to bargain down your prices, customers demanding unreasonable returns, stores who don’t want to abide by your payment terms. Their first reaction is to develop terms that completely protect them from anything a customer could throw at them.
The trouble is, terms that totally protect the buyer may totally turn off your customer. You may inadvertently slam the door shut before anyone can begin talking.
First, the sales process is one of give-and-take and trust has to work both ways. Understand that for a store, they are also taking a chance on YOU. What if you are a flaky artist who can’t meet deadlines or whose work quality is inconsistent? For every artist who complains of a buyer who pays invoices late and returns goods at the drop of a hat, there’s an artist who failed to ship merchandise on time, or never finished a custom order. After listing to a formidable set of terms in a brochure from an artist new to wholesale, I commented it was like demanding a prenuptial agreement on the first date. Let’s see if you LIKE each other and can decide if the relationship will work before we lay down the law about commitment.
That’s why a general informative brochure you hand out to prospective customers may not be the best place to lay out your entire term policy. Someone who likes your work but is not sure it’s a good fit for your store will find a great reason to say no, if the terms in your brochure threaten them with court action if they pay their invoice late. For such an “introductory” piece, a more customer-friendly version may be appropriate: “Minimum opening order of $200, prepaid at time of shipping.”
Second, terms usually grow organically out of your personal experiences, with a few caveats gained from your peers thrown in. It’s always great to learn through others’ mistakes as much as possible, of course. But modeling yourself too rigidly on someone else’s business can have its drawbacks, too. Someone who makes and sells furniture will have a very different policy regarding minimum orders, shipping charges and returns than someone who knits and sells hats for children.
Third, your terms can be flexible. They may represent your firm policy (“All orders prepaid at time of shipping”) or a starting point for negotiation. (“Hey, you’ve established a great payment history with me for the last year, may I offer you net 30 on your next order?”)
So how can you decide what terms you can offer your buyers?
Take a look at what others are doing. Get a feel for what artists doing similar work, at similar prices are offering their customers.
Take a look at your terms from the customers point of view. And be consistent in what you SAY your policies are, even if you are willing to make exceptions from time to time. How would you like it if you tried to buy a dress at a store and were told, “We offer some of our customers lay-away. But not everyone. Hmmmm…..I don’t think we’ll let you use lay-away. We need cash upfront from YOU.”
However, if you had a bad payment history with that same store, they would have every right to restrict you from using it. And so do you. You establish the conditions under which you choose to do business with someone. If an interior designer wants to purchase one piece of your furniture, but wants your wholesale price, you can sell it to them if you want to. Or you can also decide they do not meet your minimum order requirements (3 pieces) or your store requirements (must have a “bricks-and-mortar” establishment, slang for “a real storefront.” You can offer them a professional discount of a percentage off your retail price (usually 10%-20%). Or you can just say no. It’s up to you.
Which brings us to minimum orders. You can have a minimum dollar amount or a minimum number of pieces, or a combination of both. You can require a minimum dollar amount on your lower-priced work, and a minimum number of pieces on your higher priced work (so that someone doesn’t meet your minimum $$ on one high-priced piece, for example.)
How high a minimum? Not so high that a buyer can’t afford to experiment with your line. How low? Not so low that the order is a nuisance to produce, pack, bill and ship. Some artists base this number on the minimum number of pieces they feel has to be on display to make an impressive collection. Others (like me) are willing to sell one high-priced piece along with a substantial number of mid- to lower-priced pieces to create that “critical mass” in the display. It’s a dance, and trial-and-error will help you strike a balance. Remember, again, that a furniture maker or jeweler working in precious metals and stones may have a much higher minimum (thousands of dollars, a handful of items) compared to a felt-ornament maker (dozens of pieces, little $$)
I could go on, but I hope I’ve given you food for thought on how to put together your terms. Remember it’s a balancing act, a dance, between protecting yourself, and reassuring your customer they don’t have to protect themselves against YOU. Remember we’re all in this together—you, the store buyer customer and the end-user retail customer—and we need each other to make this thing work. Remember that nothing is gained without venturing SOME risk, but that risk can be reasonable and controlled. And that your buyer is risking something, too. Remember that nothing is written in stone. If something doesn’t work for you, you can always change it so it works better. It’s good to try to get it right the first time, but it’s not something you’ll achieve “every first time.
Now get out there and sell somethin’!
