Do Your Homework Before Selling Your Product on Home Shopping Channels
Sales channels involving television or Internet-based shopping networks can mean boom or bust for a small entrepreneur with a great product.
Yesterday I read that Home Shopping Network (HSN) increased their sales 9% during the past 12 months. HSN, QVC, ShopNBC, Canadian Shopping Channel and many other television/Internet format based sales channels offer companies with a compelling product the opportunity to sell a tremendous number of products in a very short time. But as good as it sounds, small businesses need to familiarize themselves with some of the pros and cons of selling through these kind of sales channels.
Nearly all the shopping channels have contracts that have similar provisions that the small business owner should be aware of.
The shopping channels are pretty good at picking good products to sell through their format and they are good at gauging how many they may sell for every 5 – 12 minute segment they show your product in but they don’t care if you are stuck with a large number of products that don’t sell.
When you are selling through a shopping channel network you are selling under a consignment method though the language in their agreements doesn’t call it that. They specify how many items you must have available for them to sell, but if they don’t sell them and don’t want to conduct a repeat show, then you agree to take them all back. Some in the industry call this a consignment sale.
They typically agree to pay you in net 30 terms after a sale, so you will have expended a large amount of cash up front to manufacture or acquire your goods, have it sitting idle in the shopping channel warehouse and then wait an additional 30 - 45 days until you are paid. If you don’t have enough cash to cover those costs you will have to find it.
Sales to shopping channels are typically not financeable. The reason is the nature of the guaranteed sale makes it like a consignment. You are not transferring title to property like you would if you were selling to many traditional retailers. Unless you can get a loan secured by other collateral or invoices then you aren’t likely to get one only for this project.
When a shopping channel first agrees to try your product they will do so on a small scale. These channels run 24 hours a day. You may get your first shot at an audience at 2:45 AM. While that may not be a bad time for your product, it also may be terrible. Scheduling and number of units carried tend to not be negotiable.
Shopping Channel contracts tend to be “take it or leave it,” meaning you will have very little ability to negotiate terms and conditions.
I have never bought anything from a shopping channel, but understand they have a very consumer friendly return policy. Vendors selling products through shopping networks must either take back the product or simply issue a credit. You have no control over the shopping channel network’s return policy.
I have a friend who specializes in getting his clients products into the shopping channel networks. He has been quite successful over the years in using shopping channels as a network and makes his rounds at all of the shopping network’s home offices at least quarterly. He is a big proponent of using this sales channel for the right kinds of products, but he also wants his clients to read and fully understand the fine print of the typical shopping channel contract.
Sam Thacker is a partner in Austin Texas based Business Finance Solutions.
Direct email: sam@lesliethacker.com
Twitter: @SMBFinance
