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Are you underestimating your marketing costs?

Are you underestimating your marketing costs?

By Richard Horwell, Brand Relations. You have a fantastic new food or drink brand. It truly is a wonderful product. Congratulations, you’ve successfully negotiated the easy part. Now you need to generate sales. Far too many entrepreneurs think they can handle the sales and marketing themselves, without any real understanding of what’s involved or the marketing budgets they will need. Let’s take a look.

Wholesalers and retailers

The main route to market for new brands is through wholesalers; selling direct to stores is almost impossible. But do not rush to contact the most obvious large wholesaler without checking if the wholesaler supplies your target retailers – you would be surprised how frequently this mistake is made.

Once you’ve sourced the wholesalers your targeted retailers buy from, you must now convince the wholesaler to give you a listing and, inevitably, pay their listing / marketing fees. So be very aware that stocking at wholesalers isn’t cheap. You will be asked to spend a minimum £2,000 listing fee per wholesaler, before your product is even advertised in their catalogues and that doesn’t include the additional marketing which involves YOU providing the banners, e-flyers and any other materials for them. Some wholesalers demand the marketing budget to be paid in full upfront before they even place an order. Even then, the order is sale-or-return, so you may end up paying thousands and still not selling anything.

However, despite all the cost considerations, it is still essential that you redirect as much business as you can to your chosen wholesalers and don’t try to circumvent them (remember, supermarkets are ruthless). If wholesalers are making money selling your product, they will maintain the listing – and that’s what you need.

Costs: £2000 per wholesaler + wholesale marketing costs, which are likely to be around £5k for point of sale, banners, etc.

Initial production runs

Remember when you first launch your brand, try to keep the initial production run to a minimum, as wholesalers want maximum amount shelf life on new brands, and it can take a few months before you are in their next catalogue. Meanwhile, your stock is using up shelf life just sitting around.

Sadly, buyers will only look at finished product so don’t think you can take a few mock-ups and get an order, as that never happens. Try to get a small run of finished product at a premium cost, then get some listings and go for a larger run.

For example, for a short beverage-product run, you might be looking to pay £1 per unit, which seems expensive but for that you will produce around 1,000 litres and that would cost around £5k in total (per flavour). You may only pay a fraction per unit – something like 20p – if you do a large run but this is likely to cost around £30k. So, if you don’t shift any product after the initial run, better to lose £5k than £30k. Plus if you decide to tweak a formulation or flavour, you have an awful lot to sell through before you make that tweak.

Costs: minimum £5k per flavour for drinks. And likely to be much more for a food product.

Exhibitions

Exhibitions are something to consider as they can be a good way to present your product to buyers, but finding the most suitable ones, once again, requires research and planning.

A stand at an exhibition starts from around £3,000 plus any additional costs such as travel, accommodation, stand dressing and promotional materials like banners, brochures, samples, etc.

The people selling the exhibition space will make it sound so easy, but it’s not. You need the right exhibition, with the right buyers, and a lot of hard work to generate worthwhile leads. Indeed, these days very few buyers take the time to visit the shows – they are simply too busy. Many of my buyer friends have told me that they go to exhibitions in their private time, as Head Office no longer sees them as relevant. Whatever exhibition you choose, be very careful what you spend and make sure it’s a well-targeted and well-marketed show.

Costs: around £5k per exhibition

Direct online sales

Another route to your target consumer is to go direct. This is known as ‘direct to consumer’ or D2C. It involves utilising social media and third-party platforms which manage your sales for you—like Amazon, Shopify and Woo Commerce—plus online advertising to bridge the conversation directly between your brand and the consumer. 

Each platform will take a cut of the sales you make, and some may charge a monthly fee as well. However, they are worth considering as they have their own customers already who trust the items they sell. So, it’s a great way to reach people – but you still need to do your own marketing.

Costs: around 5% of each sale

Marketing

Whether you are selling D2C or through retailers, you will need to engage in your own marketing. Retailers won’t market your product for you – they will expect you to do that. And the better, and more comprehensive, the marketing plan that you can show them, the more likely it is that a wholesaler will take you on, and the more likely that a retailer will stock you. Both want to see your product sell – but for that to happen, you need to tell consumers about it.

Your marketing should include Social Media, SEO, PR, and of course, your own website.

Although social media is free in principle, be prepared to pump money into advertising on Facebook or Instagram as that will help you gain traction and get your brand known: the more followers and conversations you have, the more attractive your product is to a buyer or investor.

The internet is your window to the world, so use it. If necessary, get professional help, and be prepared to invest in your website, your advertising, your ecommerce system and your imagery – after all everything sells better if the imagery is attractive.

When it comes to your website, it’s essential that it’s easy-to-use and has a robust ecommerce system that includes shopping baskets, accounts for returning customers, FAQs and detailed information about the product and the brand story.

Also think about the questions consumers and buyers are likely to ask and ensure the website answers them before they have to ask. Your website shows off who you are and what your product is, so make sure it looks enticing, professional and is something to be proud of.

If you are outsourcing your website, you should look to spend a couple of thousand pounds only to begin with, and that should incorporate both the build and the ongoing ecommerce system.

PR is also worth considering as getting your product featured in newspapers and magazines can boost sales. We’ve worked with small start-up brands that have engaged in a pro-active PR campaign that’s generated coverage for them in national media outlets, which in turn has led to a strong, sustained increase in sales. PR is also helpful when speaking to wholesalers and retailers who will want to see that you are actively building brand awareness and taking steps to help them sell your product.

Costs: Website, SEO, Social Media advertising, PR at least £4k per month

Investment

With all the money that will have to be spent, unless you have substantial funding or support, you will need investment, and you’ll need it quickly in order to survive and thrive. 

If you have used up all your personal, family and/or friends’ investment to get to the starting line, then you need to look at either start-up loans, or investment from Angels or Investment Houses, crowd funding such as Crowd Cube or campaigns such as Kickstarter. Otherwise, you will run out of money – and that is how most businesses fail. Make sure raising money or ensuring you have enough is a priority. 

Being able to show early sales, and a good marketing campaign to build on the initial successes and grow the sales, will be crucial to attracting investors. And, of course, pitching to investors isn’t free either. Many networks charge a set fee before you can access their members, and many also charge a percentage ‘success fee’ (generally in the 5-7% range). So, ensure you budget for this too.

Costs: around 10-15% of the money raised, much of which is required upfront.

Remember to put food on your plate

As with all new start-ups you will need personal money behind you, as you probably won’t make a salary for at least the first year. So, if you can, balance your new business venture with your existing full-time job.

Building any business isn’t easy and it requires lots of money to get you there. Food and drink is no different. For any business start-up, every penny counts so ensure you research and plan where those all those pennies will come from and where they will go. 

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Richard Horwell