Product retail fit - 10 things hardware startups should know
10 THINGS HARDWARE STARTUPS
SHOULD KNOW ABOUT RETAIL
YOU’VE DONE IT!… almost
• You built a product
• You got buzz
• You completed a Kickstarter
That was HALF THE BATTLE
Your next battle is…RETAIL! THE LATEST SHINY GADGET
BRICK AND MORTAR
E-commerce is only
7.5% of U.S. retail
* Source: US Census Bureau, Q4 2015
1. WHY BOTHER WITH BRICK & MORTAR
Retailer purchases inventory from you
and owns it. Retailer is assuming all risk
and getting higher margin.
You are paid as products are sold
to the end user.
Less margin for the retailer.
Common in high-price point
DROP SHIP /
DIRECT VENDOR SHIP
Products are shipped directly from
your warehouse to customers. Less margin
for the retailer if you pay for shipping.
Common across all retailers,
especially for heavy products.
Retailer is the listing agent;
orders are drop-shipped by you.
Less margin for the retailer.
2. ONE PRODUCT, MANY RETAIL MODELS
STARTUP RETAILERSALES AGENCY
OR SALES REP CUSTOMERS
BUYER / MERCHANTYOU
3. YOU NEED TO WIN THE BUYER
Images via Rachel Harris
at The Noun Project
• Work on financial & strategic plans
• Manage vendor relationships
• Source new product
• Trade shows / industry events
• Connections / sales reps
* in order of effectiveness
3. YOU NEED TO WIN THE BUYER
4. READ THE FINE PRINT
DEFINITION TYPICAL RANGE
The % of the retail price
the retailer keeps.
25-40% is typical
in consumer electronics.
Also called “days to pay”.
Days between delivery to the retailer
and their payment to you.
30-90 days, depending.
This is often
the most negotiable term
When a customer returns a product
to a retailer, you generally pay for it.
is a safe rule of thumb.
IN-STORE / ONLINE
You might have to “fund” all pre-planned
in-store and online promotions.
The price cut is out of YOUR share.
e.g. Regular retail price: $100
Retailer: 30% | You: 70%
“10% off” promotion: $90
Retailer: still 30% | You: 60%
Fees for shelf placement
or online real estate.
5. MIDDLEMEN CAN HELP
You ran a
Ask mentors or other startups for references
DISTRIBUTORS 5-8% of wholesale cost
SALES REP 2-5% of wholesale cost
Per-product fee. Varies.
5-20% of inventory cost
Service fee + equity (sometimes)
6. IT’S A MARATHON
LIKES YOUR PRODUCT,
REQUESTS A SAMPLE
ADDS YOUR SAMPLE
TO HER “ASSORTMENT” FOR
THE NEXT CATEGORY UPDATE
UPDATES OCCUR 1-2 TIMES/YEAR
PRESENTS THIS NEW
“ASSORTMENT” TO HER BOSS
THERE’S A LOT OF IT
YOUR PRODUCT IS
ON THE SHELVES!
TOTAL TIME: 6-12 MONTHS
1 2 3
7. SHOPPING = RESEARCH
What’s the range of prices in your category?
Where do you ﬁt?
What is different about your product?
How are you conveying that message?
Why would someone choose your product?
How are your competitors marketing their products?
How can you compete?
What type of packaging is most effective?
Where in the store or online does your product land?
Who shops this category?
8. TWO MAJOR ADMIN TASKS
1) BECOME A
Retailers need to make sure
you are a registered
corporation, have a bank
account, don’t operate
2) REGISTER YOUR
PRODUCTS IN THE
Retailers need to know every
detail about your individual
products, for distribution
purposes and for effective
WHY THEY NEED IT: SAMPLE INFO:
•Factory location/shipping port
•Unit sales/# of customers
•All item attributes: size, color, etc.
•Components, including batteries
9. NEW STARTUP-FRIENDLY OPTIONS
Online platform for startup products,“showcasing an ever-
expanding collection of fresh new products from popular
crowdfunding platforms, incubators and startups.”
Target’s connected home lab and retail space in San Francisco.
Sells products from startups and major brands side-by-side.
“End-to-end development, manufacturing and retail program that
can help you realize the full potential of your product idea.”
B8ta is “the ﬁrst brick-and-mortar retailer architected to help you
discover, experience and buy the latest tech and IoT product.”
Located in Palo Alto, CA.
• You don’t have to be a great
salesperson, a distribution expert,
or a marketing guru to go into retail.
• Use your network, do your
research, and pick good partners.
• Talk to other hardware founders
who have done it before.
• Don’t try to reinvent the wheel!
“I think people overweight the value of an idea.
90% of success is execution,
just driving through the circumstances.”
Co-founder of Harry’s, Inc.
Buyer/Merchant (same person!): This is the general manager
of the category you are selling into. Buyers tend to own a
collection of products in a particular part of the store; e.g. girl’s
toys, salty snacks or sporting goods. The buyer works with
vendors to decide which products to sell.
PO (Purchase Order): When a buyer decides to sell your
product in her category, she’ll work with her inventory planner
to write a PO. This is your formal “order”, and is generally your
only legally binding obligation to a retailer.
Retail: Industry jargon for the word “price”, short for “retail
price”. This is generally the same as MSRP (Manufacturer’s
Suggested Retail Price), and is the price that you have decided
to charge for your product across channels. Buyers will want
you to maintain the same price across retailers to avoid price
competition for your product.
Cost: When a buyer talks about cost, he is referring to the
wholesale price that you will charge the retailer for each unit.
The difference between your cost and the retail is the margin
that the retailer gets to keep for each unit sold.
POG: Short for planogram, is the diagram that buyers use to
decide where each product goes on a shelf. Brick and mortar
retailers will often have POG rooms, which are mock shelves
used to demonstrate what the actual product looks like in
stores. Google Image “planogram” for an example of a 2-D
Transition: Transitions are the changing of seasons or cycles
for a retailer. For example, the day after Easter, the candy
buyer will have planned a “transition” from an assortment
featuring Easter candy to an assortment featuring no Easter
candy. She will use internal systems to put exiting product on
clearance. In non-seasonal categories, such as consumer
electronics, transitions occur in a preplanned month, generally
once or twice a year. A non-seasonal category typically
“transitions” about 10-20% of products out 1-2 times per year,
based on product performance, customer demand and
Vendor: As a hardware startup, that’s YOU. Vendors are
companies that sell to a retailer. Vendors can range from
MNCs like Coca Cola to single-product companies.